AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the following rating for Aransas County, Texas (the county):
--$15.3 million certificates of obligation (COs) at 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE
--The county benefits from a desirable coastal location;
--Despite recent revenue pressures, the county's financial position remains solid as characterized by strong liquidity and reserve levels as a percentage of spending, which somewhat offset its vulnerability to adverse weather events;
--Debt levels are modest, principal amortization is above average, and the county's capital needs appear manageable over the near term;
--The fairly stable local economy is narrow and remains susceptible to fluctuations in tourism as well as oil/gas activity;
--Historically double-digit tax base expansion from second and retirement home development have halted in light of overall weaker economic conditions; the tax base declined modestly in fiscal year (FY) 2011. Taxpayer concentration is minimal;
--The tax rate is moderate and the county maintains significant financial flexibility in its various tax levies.
KEY RATING DRIVER
--Actual financial performance that continues to exceed annually budgeted numbers and maintenance of solid reserve levels will be integral to sustaining credit quality.
SECURITY
The COs are secured by a limited ad valorem tax pledge of the county, not to exceed $0.80 per $100 of taxable assessed valuation (TAV) and are additionally secured by a pledge of surplus revenues (typically limited in amount to $1,000) from the county's airport system and solid waste disposal system .
CREDIT SUMMARY
Aransas County is located on the Texas coast, approximately 30 miles northeast of the city of Corpus Christi. The county's estimated population of nearly 25,000 represents an increase of roughly 10% since the 2000 census. Wealth indicators are generally below state and national averages. The county's fairly stable but narrow local economy is centered around tourism, retail trade, and oil and gas production/refining. While rising on a year-over-year basis, the county's November 2010 unemployment rate of 7.9% remained below the Corpus Christi metropolitan statistical area, state and U.S levels.
Historically strong annual tax base gains that have exceeded 10% since FY 2002 due to primarily second and retirement home development began slowing in FYs 2009 and 2010 in light of overall weaker economic conditions. Most recently, the county's taxable values recorded a modest 5% decline in FY 2011. Top ten taxpayer concentration remains minimal at about 5%. Management anticipates generally flat growth in the tax base over the near-term, although long-term prospects for a return to higher levels of development remain strong, given the area's recreational and retirement popularity.
Comparable to other Texas counties, Aransas County is responsible for limited services, including roads, bridges, civil and criminal courts, law enforcement and indigent medical care. Property taxes are the county's primary operating revenue source, accounting for just over 50% of total general fund sources in FY 2009. The county also levies a 1/2-cent sales tax for property tax relief that contributes about 10% of general fund revenues and a 1/2-cent sales tax for health services. In light of weaker economic conditions, sales tax revenues began declining moderately on an annual basis in FY 2008 which continued through FY 2010. Nonetheless, the rate of sales tax decline improved slightly in FY 2010, down roughly 4% as compared to 6.5% the year prior. Management reports year-to-date sales tax revenues for the first two months of FY 2011 are up by roughly 8%.
Recent revenue pressures stemming from the delayed completion of the county's jail expansion (the county realizes revenue from the use of its jail by federal prisoners) and moderate declines in sales tax revenues contributed to larger operating deficits in FYs 2008 and 2009. While management implemented various mid-year spending cuts to offset revenue shortfalls, the FY 2009 unreserved general fund balance of $2.7 million (roughly 23% of spending) nonetheless dipped slightly below the county's informal fund balance policy of maintaining a minimum of $3 million or three months of operational spending in reserves. It should be noted, however, that results remained in line with expectations for this rating category. Liquidity stayed strong with $5.3 million in cash/investments in FY 2009, equivalent to over five months of spending.
Further expenditure savings which included delayed capital spending and a hiring freeze were implemented in FY 2010. In addition, the jail was fully operational for the complete fiscal year. Despite the year's decline in sales tax revenues, management currently projects adding approximately $1.3 million to general fund reserves, which would boost reserves to approximately $4 million or just over 30% of spending on an unaudited basis. Spending was tightened further in the FY 2011 budget with a more conservative 5% year-to-year decline estimated for the year's general fund sales tax revenues. The FY 2011 $12.6 million general fund operating expenditure budget was adopted with a modest operating deficit of approximately $220,000. Management reports that this estimated result is on par with prior years' budgets. The year's actual financial performance is anticipated to outperform the budget with FY 2011 general fund reserve levels remaining comparable to expected prior year results.
The county is an infrequent borrower that generally has met most of its capital needs with available resources. However, as a result of steady population growth, the county has now identified larger projects which may require external financing. While previous plans for a new courthouse are reportedly on hold due to the overall weak economy, management reports preliminary plans to issue $4 million in COs for flood control projects later this year. Fitch expects debt levels will remain manageable for the rating category given the county's current low direct debt burden and management's historically conservative debt practices. Overall debt levels are also fairly modest at nearly $2,470 per capita and as a percentage of market value at not quite 2%. Principal amortization of direct debt is above-average with nearly 70% repaid within ten years. The county's pension plan, as well as disability and death benefits, is thru the Texas County and District Retirement System (TCDRS) and the county's funded position is solid at 89.5% as of Dec. 31, 2008. The county has made 100% of its annual pension cost (APC) for FYs 2007-2009; the county has one retiree.
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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