AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'A+' rating on the following Columbus, TX (the city) certificates of obligation (COs):
--$3.5 million series 2005.
The Rating Outlook is Stable.
SECURITY
The COs are secured by a limited ad valorem tax pledge of the city, not to exceed $1.50 per $100 of taxable assessed valuation (TAV) and are additionally secured by a pledge of surplus revenues (limited in amount to $1,000) from the city's combined utility system.
KEY RATING DRIVERS
MODEST SALES TAX RELIANCE: The general fund's dependence on sales tax receipts has lessened over the past five years due to growth in the property tax base. While sales tax trends typically mirror general economic cycles, the city's receipts have increased in all but one of the past 10 years. Following a decline in fiscal 2010, the recovering local economy supported healthy gains through fiscal 2012, with strong fiscal 2013 performance through the first quarter.
ADEQUATE BUT MODEST RESERVES: The city's unrestricted general fund balance is adequate in relation to spending, but modest in nominal terms and substantially lower than in prior years. Further material diminishment of reserve levels would be a credit concern given moderate exposure to economically sensitive sales taxes.
STEADY TAX BASE GROWTH: The small rural tax base realized steady growth throughout the recession, benefitting from proximity to Houston, along interstate 10. Additional commercial and industrial development underway and the city's strategic location position it for continuing gains. Taxpayer concentration is somewhat mitigated by diversity among the top 10 taxpayers.
MANAGEABLE DEBT BURDEN: Overall debt levels are moderate due to utility fund support of general obligation debt. Fitch anticipates debt levels to decline based on a rapid amortization rate and no immediate plans for new debt issuance. Carrying costs, which include annual debt service, pension and other post-employment (OPEB) contributions are affordable.
CREDIT PROFILE
Columbus resides 74 miles west of Houston, along Interstate 10 on the Colorado River with a population of approximately 3,650.
SOUTHEAST TEXAS RURAL COMMUNITY
Columbus is the county seat and commercial center of Colorado County, an agricultural area and leading producer of rice in the state. The county's tax base is 55% residential with a growing commercial/industrial sector benefiting from ready access to Houston, San Antonio and Austin along Interstate 10 and Highway 71. Recent additions to tax base have included two new hotels, a new bank and national chain auto parts store, with further commercial expansion underway which contributes to the city's estimated 2% TAV growth in fiscal 2012 and 2013.
Columbus borders the Eagle Ford Shale gas/oil field, which has brought oil & gas support service companies to the region. A Houston-based oil & gas fabricating company acquired land in the city's industrial park during fiscal 2011, constructing a new facility to open in fiscal 2013, adding 150 new jobs over the next several years. The city also reports the addition of a cable company to the industrial park during the first quarter of 2013.
Top employers include the local school district, health service providers, construction services and retail, contributing to the county's low unemployment rate of 5.5% as of October 2012, well below state and national averages. Characteristic of an agricultural area, the city's population has remained relatively flat over the past 10 years, with a median income 22% below the state and 24% below the national average.
SOLID REVENUE GROWTH
General fund operations were supported by a mix of sales (42%), property (30%), and franchise taxes (15%) in fiscal 2011. Tax revenues have realized solid compound annual growth of 3.7% over the past four years led by 9.7% average growth in property tax revenues attributable to TAV gains.
Sales tax revenues grew 8.8% in fiscal 2011, reversing a 7.3% decline in fiscal 2010. Unaudited fiscal 2012 results indicate continued strong sales tax growth of 6.5%, with favorable fiscal 2013 results through the first quarter.
PRESSURE ON NET MARGINS
The city's revenue gains have been absorbed by generally increasing governmental costs, although transfers from the utility fund have reduced recurring deficits over the past five years. Utility fund transfers, established in the annual budget cycle, represent the chargeback of administrative costs and payment in lieu of taxes based on water & sewer and gas sales. The utility transfers made up 21% of fiscal 2011 revenue and transfers in.
A fiscal 2011 net deficit of $95,000 (4% of spending) resulted from increased public safety, public works and public health department costs associated with staff increases, vehicle purchases and street projects. The year-end unrestricted fund balance of $849 thousand (36.5% of spending and transfers out), while in excess of the city's two-month policy target, is reduced from more robust levels in excess of $1 million over the past six years. Unaudited fiscal 2012 results are break-even and the city anticipates similar performance in 2013.
MODERATE DEBT
Overall debt is moderate, reflecting a high level of utility fund support for the city's general obligation debt, rapid amortization and overlapping debt from Colorado County and Columbus Independent School District. The city anticipates near-term capital needs to be funded with general fund and grant monies.
The city's pension plan is provided through the Texas Municipal Retirement System (TMRS), with an adequately funded position of 81.1% as of Dec. 31, 2011, based on the TMRS investment rate assumption of 7%. The city provides other post-employment benefits (OPEB) to retirees through TMRS in the form of supplemental death benefits which are subject to discontinuation on an annual basis. Carrying costs for debt service, pension actuarially required contributions, and OPEB paygo attributed to governmental operations total $313,300, or a low 12.6% of fiscal 2011 spending.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors, 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:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.