AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following Austin, Texas (the city) obligations:
--$76.045 million public improvement bonds (PIBs), series 2008;
--$10.7 million certificates of obligation (COs), series 2008;
--$26.715 million public property finance contractual obligations (PPFCOs), series 2008.
Additionally, the 'AA+' rating on the city's $743.9 million of outstanding general obligation bonds, $106.1 million of COs, and $48.5 million of contractual obligations is affirmed. The bonds are scheduled to be sold competitively on August 28th. The Rating Outlook is Stable.
The PIBs, COs, and PPFCOs are direct obligations of the city and are secured by a continuing direct ad valorem tax levied within the limits prescribed by law and the city charter against all taxable property in the city. The COs are secured further by a limited pledge of surplus revenues (not to exceed $1,000) of the city's solid waste disposal system. Proceeds from the three series will be used to finance various municipal improvements, purchase equipment for city departments, and pay issuance costs.
The 'AA+' rating reflects Austin's sizeable and diverse area economy, its solid financial profile, a moderate debt burden, and manageable capital needs. Although Fitch believes the local and regional economies are fundamentally sound, recent slowdowns in housing, employment, sales tax revenues and various other indicators are evidence that this area is not immune to the nationwide economic slowdown. While further softening is likely, Fitch believes that the stable presence of state government and higher education will act as an economic buffer for the Austin area as they have in past economic downturns. Fitch notes as a key rating driver the challenge to city administrators to meet expanding service demands from a growing population, in an environment of escalating core service costs and slowing revenue growth.
Audited fiscal 2007 general fund results included a reduction in general fund reserves of roughly $5 million, which included a net surplus of $14 million transferred to the budget stabilization reserve at fiscal 2007 year-end and a $19 million transfer out of the budget stabilization reserve for one-time outlays as allowed by city policy. Sales tax revenues exceed budget projections by roughly $600,000 and were up almost 10% from the prior year. For fiscal 2008, the slowdown in sales tax (up only 2%) and development-related revenues is contributing to an estimated general fund revenue shortfall of approximately $3 million below the amended budget. The city has responded by reducing expenditures, and the current estimate is for a $2 million net surplus (before application of budget stabilization reserves to one-time outlays).
The budget stabilization reserve is projected to end fiscal 2008 at $31.4 million, down from $52.4 million in fiscal 2007. With another $10 million drawdown of this reserve planned for fiscal 2009, Fitch views the reduction of this cushion with some concern. However, city officials state that the sizeable one-time outlays of the past several years were addressing deferred needs, and Fitch is confident that the reserve will be increased once economic conditions improve.
The proposed fiscal 2009 budget reflects the current soft economy, with sales tax revenues projected to increase only 3%. Both general fund revenues and outlays are projected to increase roughly 5% from estimated fiscal 2008 totals, and the property tax rate is expected to be little changed from last year's rate. To close an initial $25 million budget gap, the city scaled back spending in various departments, led by reductions of nearly $10 million in support and internal service departments and nearly $7 million in general fund departments, including public safety. City employees will see smaller pay increases than prior years, and the city plans to generate similar savings through the renegotiation of police, fire and EMS contracts that expire in September.
Austin's debt profile is moderate, and the pace of debt retirement is above average. The city maintains approximately $470 million of authorized but unissued bonds, the majority of which was approved by voters in a November 2006 bond election. Drainage and water quality projects, transportation, parks and library services were the largest components of the authorization request. The expected tax rate impact from the entire authorization, which will be issued through around 2011, is minimal.
The city's taxable assessed value (TAV) growth has been healthy the past three fiscal years. The fiscal 2009 TAV of $76.5 billion is up more than 12% from last year, and the average annual gain since fiscal 2007 is 13.5%. Due largely to growth in the high-profile technology sector, regional employment totals have increased the past four years by more than 20,000 annually. Although job growth has slowed during 2008, the city's June 2008 unemployment rate of 3.9% was well below the state (4.8%) and national (5.5%) averages. The number of building permits through July 2008 is down only 2% from the same period last year, and the rate of residential foreclosures is well below the national average.