Fitch Rates Fort Bend County, TX ULT Road Rfdg Bonds 'AA+'; Outlook Stable
AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following Fort Bend County, Texas' (the county) bonds:
--$18.8 million unlimited tax (ULT) road refunding bonds, series 2014.
The bonds are expected to price via negotiation March 3. Bond proceeds will be used to refund certain maturities for economic savings and to pay issuance costs.
In addition, Fitch affirms the following outstanding ratings at 'AA+':
--$277 million (pre-refunding) ULT road bonds;
--$183.6 million limited tax bonds;
--$155.1 million limited contract tax and subordinate lien toll revenue bonds (issued by Fort Bend Grand Parkway Toll Road Authority).
The bonds are direct obligations of the county, payable from an unlimited ad valorem tax pledge on all taxable property within the county. No rating distinction is made between the unlimited and limited tax (up to $0.80 per $100 TAV) bonds given the wide taxing margin.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: The county's prudent fiscal practices are evident in the consistent maintenance of strong financial reserves despite growth-related spending pressures while annually investing a significant portion in pay-as-you-go capital projects. Property taxes comprise over three-fourths of the county's general fund resources, providing a level of stability to the county's financial profile and budgeting efforts.
ABOVE-AVERAGE ECONOMY, DEMOGRAPHIC PROFILE: The county benefits from its location within the broad and diverse Houston MSA. County income and educational attainment metrics are well above those of the MSA, state, and nation. The county's own economy continues to expand and diversify, with unemployment levels below state and national averages.
TAV REBOUNDS FROM RECESSION: Taxable assessed valuation (TAV) performance reflects a return to historically solid growth trends after a relatively short, two-year period of sluggish to modestly declining TAV over the recession. Gains in the county's diverse tax base are due largely to significant residential development in the county, which has been bolstered by the county's continued, active efforts to expand its transportation corridors.
HIGH OVERALL DEBT: Overall debt levels are high, reflective of the area's growth-related capital needs. Nonetheless, voters continue to consistently support county management's bond and capital priorities at strong approval rates. Capital needs appear to be manageable and carrying costs are moderate due in part to the below-average pace of principal amortization of the county's direct debt. The pension's funded position is satisfactory.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including conservative fiscal management practices. The significant financial flexibility provided by the county's financial position helps to largely mitigate Fitch's concerns regarding the high debt levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely over the near term.
Fort Bend County has been one of the fastest growing counties in the state and nation. Currently estimated at nearly 630,000 residents, the county's population has grown rapidly since 2000. Expansion has been fueled by its location within the growing and diverse Houston metropolitan economy as well as the availability of ample land and housing that continues to further develop the county's own economy and employment base.
RESILIENT HOUSTON MSA ECONOMY, TAX BASE
The county's tax base has historically realized strong, double-digit annual gains in line with rapid population expansion. Recessionary economic pressures saw TAV growth begin to slow in fiscal 2010, although the full effect of the recession on the county's tax base was relatively mild and short-lived. The two-year trend of sluggish to modestly declining TAV over fiscal years 2011-2012 reversed course in fiscal 2013 with a 4% gain, primarily due to pent-up housing demand and associated residential development. A strong 12% gain was realized in fiscal 2014, increasing TAV to about $44.4 billion. The county's tax base is diverse with the top 10 taxpayers comprising 5% of the total tax base. Development projects underway, in addition to ample developable land, support management's conservative assumption of moderate annual TAV growth of 4%-5% over the near term, which Fitch believes is reasonable.
The county's own economic base has grown significantly within the last decade, bolstered by the county's ongoing, active efforts to expand its roadways. Substantial population gains and residential development have resulted in expanding retail and commercial sectors. The county's unemployment rate of 5.0% in December 2013 is down year-over-year and comfortably below the state (5.6%) and the nation (6.5%) for the same period. This is in addition to roughly 2.5% year-over-year labor force growth. Wealth and educational attainment levels remain notably higher than those for the Houston MSA, state, and nation.
CONSERVATIVE FISCAL STEWARDSHIP YIELDS STRONG PERFORMANCE
The county's financial position and conservative fiscal stewardship are important credit strengths. Over the last five fiscal years (fiscals 2008-2012), the county has consistently posted general fund balances comfortably above its policy to maintain a minimum of 15% of expenditures despite spending about $88 million or an average of 9% of spending in pay-as-you-go capital projects during the same period. The county's tax rate is moderate at just under $0.50 per $100 TAV and it has remained stable over the last six fiscal years, although management has shifted portions of the levy to offset the short-lived effect of the recession on the tax base.
Unrestricted general fund reserves totaled $35.7 million or 17% of spending at fiscal 2012 year-end, down from $43.9 million the prior fiscal year after management's decision to use a larger than previously anticipated $8 million in reserves for capital projects. Fiscal 2013 results improve upon a modest drawdown for pay-go capital spending budgeted and anticipate a $1.7 million surplus with reserves maintained comparable to fiscal 2012. Liquidity remains sound at $39.8 million or over two months of general operations. The $204.4 million fiscal 2014 general operating budget is structurally balanced and maintains the 15% reserve floor. Management reports favorable revenue and expenditures trends to budget year-to-date that are anticipated to soften the nearly $8 million draw on reserves budgeted for pay-go capital spending.
OVERALL DEBT HIGH; OTHER LONG-TERM LIABILITIES MODERATE
Overall debt levels are high at approximately $7,900 on a per capita basis and 9.0% of market value, reflecting the area's rapid growth. Fitch anticipates overall debt levels will remain elevated from continued, growth-related capital and debt needs of various local governments that outpace TAV and population gains made over the near- to intermediate-term. Principal amortization of the county's outstanding direct debt is below average with 42% retired in 10 years.
Capital needs appear manageable over the near- to intermediate-term as management has proactively addressed its general purpose facility needs with prior bond proceeds and annual pay-as-you-go funding. Fitch believes the county's historically high level of annual pay-as-you-go spending will likely moderate over the near term given sufficient facility capacity and expectations of continued, growth-related operational spending pressures. The county maintains $41 million in authorized but unissued bonds bond authority for county roads from 2007 that management expects to issue by fiscal 2014 year-end, comparable to prior expectations. Voters again signaled their support for additional transportation investment with strong approval of a $185 million mobility (ULT) road bond authorization that is somewhat ahead of previous plans and is projected to last the county over the next 5-7 years for prioritized, non-toll road projects. Fitch expects the county will require additional debt issuance for roads periodically in the intermediate- to long-term given the area's ongoing rapid population gains.
PENSION FUNDING SATISFACTORY
The county's pension plan is through the Texas County and District Retirement System. Its funded position in this statewide defined benefit plan was good at 82.9% as of the most recent Dec. 31, 2011 actuarial valuation date; the county routinely contributes 100% of its annual required contribution (ARC). The county's funded position remains satisfactory at an estimated 74.7% using Fitch's more conservative investment rate assumption of 7%. Other post-employment benefits (OPEB) are largely associated with retirees' participation in the county's self-insured health care plan. OPEB is funded on a pay-go basis (13% of the ARC in fiscal 2012). Fitch has previously noted the lack of pre-funding as a credit concern, although recognizing that benefits are subject to annual approval by county officials, which provides a level of expenditure flexibility. Carrying costs for the county (debt service, pension, OPEB costs) totaled a moderate 14.5% of governmental spending in fiscal 2012 due in part to the below-average pace of principal amortization; they are expected to remain manageable over the near- to intermediate-term.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, IHS Global Insight, and the Municipal Advisory Council of Texas.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria