AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings takes the following action on Mineral Wells, Texas' (the city) outstanding limited pledge general obligation (GO) and limited tax notes:
--$2.3 million GO refunding bonds, series 2011 affirmed at 'AA-';
--$230,000 limited tax notes, series 2011 affirmed at 'AA-';
The Rating Outlook is Stable.
SECURITY:
The GOs and limited tax notes are payable from a direct annual ad valorem tax levied, limited to $2.50 per $100 assessed valuation, against all taxable property within the city.
KEY RATING DRIVERS:
SOLID GENERAL FUND RESERVES: Prudent fiscal management is evidenced by proactive maintenance of high unrestricted general fund reserve levels, which help to mitigate tax base concentration concerns.
LIMITED, CONCENTRATED TAX BASE: The city's top 10 taxpayers comprise over 20% of the total tax base, dominated by oil/gas interests. The single largest taxpayer, a field services company, comprises 7.5%.
RELIANCE ON SALES TAXES: Economically sensitive sales taxes are the dominant revenue stream and are showing steady, modest annual improvement following recessionary declines.
PROXIMITY TO DALLAS/FT.WORTH (DFW) METRO: The city benefits from its proximity to the DFW metro area.
MODERATE DEBT BURDEN: Key debt ratios are moderate though the direct debt payout rate is rapid. Pension liabilities are well-funded.
RATING SENSITIVITES
MAINTENANCE OF HIGH FINANCIAL CUSHION: The town's continued ability to maintain a strong financial cushion is fundamental to the rating and acts as an important mitigant to inherent revenue volatility and the limited economic base.
CREDIT PROFILE:
The city of Mineral Wells is located about 45 miles west of Fort Worth (GOs rated 'AA+' with Stable Outlook by Fitch) within the Barnett Shale natural gas basin. The city's population of nearly 17,000 has remained flat in the past decade.
SOLID FINANCIAL RESERVES MAINTAINED
The sluggish economy and corresponding revenue declines prompted management to put its cash funded capital improvement projects to a halt for fiscal years 2010 through 2011 to ensure that the city could maintain an ample cushion for a prolonged recession. Deferring its capital projects for two years and implementation of budget cuts enabled the city to further boost fund balance reserves in each of those two years, despite modest budgeted drawdowns. In the last five audited fiscal years, the city conservatively maintained ample reserves ranging from 41.3% of spending to 51%, well above its policy to maintain two to three months of reserves.
The city resumed its capital spending in fiscal 2012 and again adopted its budget with a planned drawdown, but reports that sales tax revenues exceeded budget and expenditures were lower than budget. After transfers for capital projects, the estimated fund balance drawdown will be smaller than budgeted. The current estimated unrestricted general fund balance for fiscal 2012 is $4 million, or just over 44% of spending.
The city adopted another moderate drawdown on reserves in fiscal 2013 but Fitch notes that the city typically budgets conservatively and outperforms its budgets. However, given the city's concentrated tax base and relatively high reliance on economically sensitive sales tax revenues, the maintenance of solid fund balance reserve levels is an important credit consideration to the city's current rating.
MODERATE DEBT PROFILE
Overall debt ratios are moderate $1,600 per capita and 3.6% of market value (MV). The city's total tax rate at $0.49 per $100 taxable assessed value (TAV) is well below the $2.50 levy limit. Direct debt amortizes rapidly with all GO debt maturing in fiscal 2016.
Mineral Wells' pension plan is administered through the Texas Municipal Retirement System (TMRS) and is adequately funded at 86% as of Dec. 31, 2010, based on the TMRS investment rate assumption of 7%. Other post-employment benefits (OPEB) are also provided by the city through TMRS and pay-go is nominal for limited benefits, which may be terminated by city council. The unfunded actuarial accrued liability (UAAL) for pension is $3.2 million as of Dec. 31, 2010 or a nominal percentage of the city's MV.
LIMITED ECONOMIC BASE
Mineral Wells is the largest city and principal commercial center in Palo Pinto County and located in the Barnett Shale, the second largest producing on-shore natural gas field in the U.S. The economic base is limited but relatively stable. Throughout the last decade, growth in the oil and gas services and mineral extraction added concentration to the city's tax base that had historically included more diverse manufacturing. The top 10 taxpayers comprise about 21% of the total tax base with a single taxpayer, BJ Services Company (a subsidiary of Baker Hughes Inc.), accounting for nearly 8%.
The area appears to have fared better than the state and U.S. with lower unemployment levels during the recession. As of November 2012, the local unemployment rate at 5.6% remained slightly below the state's 5.8% and well below the 7.4% U.S. rate. Wealth levels are low at 71% of the state median household income (MHI) and 69% of the U.S. MHI.
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 the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, Texas Municipal Advisory Council, and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated 14 Aug. 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated 14 Aug. 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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