AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings takes the following action on San Angelo, Texas' (the city) outstanding limited pledge general obligation (GO) and certificates of obligation (CO) debt:
--$26 million outstanding GO bonds, affirmed at 'AA+';
--$65 million outstanding COs, affirmed at 'AA+'.
The Rating Outlook is Stable.
SECURITY:
The GOs and COs 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. The COs are further secured by a limited pledge of surplus revenues not to exceed $1,000 of the city's waterworks and sewer system. Fitch does not view the additional pledge as an integral part of the rating because of the very limited amount.
KEY RATING DRIVERS:
GENERAL FUND RESERVES: General fund reserves declined in recent years, and required a non-recurring transfer to restore reserves to the target policy level of 20% in fiscal 2011. Fitch notes that the decline in reserves was in part due to paygo capital outlays but also recognizes some pressure with recurring expenditure growth. Fitch expects that the city will maintain structural balance and consistent adherence to its general fund balance policy level.
MILITARY PRESENCE: Although the local economy has diversified notably, the military remains a major economic factor. While federal budget cuts to the base are currently unknown, identified sequestration cuts include about a 20% cut in payroll resulting from furloughs beginning as early as April.
STABLE ECONOMY: As a regional hub in west central Texas, the city has a stable local economy which has produced steady gains in its property tax base and sales tax receipts. The city's unemployment rate remains well below state and national averages.
MODERATE DEBT BURDEN: The city's debt profile is generally positive, with limited additional general government capital needs over the near term and an above-average principal amortization rate.
RATING SENSITIVITY
MAINTENANCE SOLID RESERVES: The city's demonstrated ability to regain structural balance and consistently adhere to its fund balance policy level is fundamental to maintaining the rating at the current level.
CREDIT PROFILE:
The city of San Angelo, which has an estimated population of roughly 95,000, encompasses almost 59 square miles and is located in western-central Texas. Since the 2000 Census, population growth has lagged the state, equaling less than 1% annually.
VARIABLE GENERAL FUND PERFORMANCE
Financial performance has historically been sound although recent years have been somewhat volatile. General fund reserves reached a peak of 25% of spending in fiscal 2006 before the city began to draw down reserves mostly due to one-time capital costs, but also a rise in spending for public safety. For fiscal year 2009, the city posted a net deficit consisting of $1.8 million in unbudgeted public safety costs and almost $2 million in pay-go capital spending. This brings the unreserved general fund balance down to 13% of spending, which is well below the city's policy minimum of 20%. Nevertheless, in fiscal 2010 the city reduced the fund balance by another $1.3 million for capital outlays.
In fiscal 2011, the city supplemented its general fund with a $3.5 million one-time transfer from the water and sewer utility, which helped boost general fund reserves back to 21% of spending and within the city's policy level. Management reports that fiscal 2012 unaudited results point to a modest surplus of roughly $500,000. The fiscal 2013 adopted budget is structurally balanced. While these restored levels are strong and within the city's policy, they were in part achieved with a non-recurring transfer, and Fitch believes the city's ability to maintain structurally balanced operations and reserve levels within its target policy are key to maintaining the rating at the current level.
MANAGEABLE DEBT LEVELS AND CIP
Overall debt levels are moderate at $1,906 and 4.1% of market value. The city's future borrowing needs are manageable and the current pace of amortization is above-average at 64% of principal retired in 10 years.
San Angelo's pension plan for civil employees is administered through the Texas Municipal Retirement System (TMRS) and is adequately funded at 77% as of Dec. 31, 2010, based on the TMRS investment rate assumption of 7%. Additionally, the city has a single employer defined benefit pension plan for city fire fighters. That plan is funded at 63% assuming a Fitch adjusted investment rate of 7%. Other post-employment benefits (OPEB) are also provided by the city but have been essentially closed to employees hired after Jan. 1, 2000. Total carrying costs including debt service, pension contributions, and OPEB constitute a moderate 17.5% of spending. The city's actual payments to the pension plan have been about $1 million less than the actuarial required contribution in the last two reported years, so actual spending was somewhat below this level.
STABLE ECONOMIC PROFILE
The city's economy is stable, anchored by agriculture, education, healthcare, government, and manufacturing. In addition, there is a sizeable military presence at nearby Goodfellow Air Force Base. Taxable assessed valuation (TAV) grew at 4.6% a compound annual rate over the last five fiscal years, despite the recession.
Unemployment levels fared better than the state and U.S. during the recession. As of December 2012, the local unemployment rate at 4.7% remained below the state's 6% and well below the 7.6% 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 Fitch's 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 Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 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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