AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the following outstanding bonds for Boerne, Texas (the city) as part of its continuous surveillance efforts:
--$23.8 million general obligation (GO) bonds at 'AA-'.
The Rating Outlook is revised to Stable from Positive.
RATING RATIONALE:
--The Outlook revision to Stable from Positive reflects the slowed growth environment stemming from overall weaker economic conditions that have delayed planned development and curtailed related revenue growth.
--Due in part to the city maintaining a low property tax rate, city operations have above-average exposure to economically-sensitive sales taxes.
--Despite weaker sales tax revenue performance, the city maintains its historically solid financial profile, characterized by strong reserve levels as a percentage of spending and aided by conservative, proactive management.
--This small city benefits from its proximity to the larger San Antonio metro economy and employment base, which has fared relatively well during the national recession. Local wealth levels are well above average.
--Historically strong tax base gains resulting from high levels of residential and subsequent attendant retail development have dwindled in light of overall weaker economic conditions.
--Debt levels are moderately high. Assisted by annual pay-go spending, the city's near-term tax-supported capital needs appear manageable.
KEY RATING DRIVERS:
--Maintaining solid reserve levels to balance operating pressures associated with higher levels of primarily residential development and the city's historic reliance on economically sensitive sales tax revenues will be integral to maintaining credit quality.
SECURITY:
The GO bonds are secured by an ad valorem tax levied on all taxable property within the city, limited to $2.50 per $100 taxable assessed valuation.
CREDIT SUMMARY:
The city of Boerne is located in central Texas approximately 30 miles west of San Antonio on Interstate Highway 10 with an estimated population of nearly 11,000. Wealth levels are above average. While still a small city, Boerne has experienced rapid population growth since 2000 along with accompanying retail/commercial expansion due to its desirable location and easy access to the larger San Antonio metro economy and employment base. Historically, the local economy has been based on tourism, agribusiness, and manufacturing; in addition, the city serves as the principal commercial/service center of predominately rural Kendall County.
Historically strong tax base gains resulting from high levels of residential and subsequent attendant retail development have dwindled in light of overall weaker economic conditions. Since fiscal 2006, the predominately residential tax base expanded rapidly at roughly 17% on average annually, although evidenced signs of slowing in fiscal 2010. For fiscal 2011, assessed valuation was primarily flat with no more than 2% growth; however market value remained sizeable at roughly $1.4 billion. While management reports some activity in various planned residential developments, the resulting growth is still conservatively projected to remain modest over the near term. Nonetheless, long-term prospects for a return to higher levels of development remain strong.
The city's financial position remains solid despite recent revenue pressure from declining to weak sales tax performance that has reversed from a pattern of historically strong annual gains. Management typically budgets conservatively and generates healthy operating surpluses annually despite pay-as-you-go capital spending. Sales taxes, which are the city's primary operating revenue, totaled about 37% of general operational revenue in fiscal 2009 and declined by nearly 4% that year. Nonetheless, management's timely budgetary response allowed the city to add modestly to reserves by year-end, bringing the unreserved general fund balance to approximately $5.8 million or 63% of spending in fiscal 2009. While sales tax performance remained fairly flat in fiscal 2010 with 2% growth, management anticipates maintaining solid year-end general fund reserves of about $5.4 million, assisted by mid-year spending adjustments that included delayed capital spending and hiring freezes.
For fiscal 2011, the nearly $11 million general fund operating budget was balanced. Budget assumptions included modest pay increases, flat sales tax revenue performance, and no increase to the tax rate, which remained unchanged for the seventh consecutive year. While roughly $900,000 is projected to be drawn down for capital spending purposes, general fund reserves are budgeted to remain at a still very solid 41% of spending or $4.5 million, well exceeding the city's formal reserve policy of maintaining at least three months or 25% of annual operational spending.
Due largely to the debt of the local school district, overall debt levels are moderately high at 4.4% of market value or nearly $5,800 on a per capita basis. Principal amortization of tax-supported debt is slightly below average at 46%. Assisted by annual pay-go spending, the city's near-term, tax-supported capital needs appear manageable; city officials report no immediate plans to approach voters for additional bond authorization. Further expansion of the city's water/wastewater system will occur shortly with the construction of a new wastewater treatment facility from the proceeds of approximately $30 million in recently issued revenue bonds (rated 'A' by Fitch with a Stable Outlook).
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc, and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', (Aug. 16, 2010);
--'U.S. Local Government Tax Supported Rating Criteria', (Oct. 8, 2010).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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