AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the following Harlingen, Texas (the city) general obligation (GO) bonds:
--$3.23 million GO refunding bonds, series 2013.
The bonds will be sold via competitive bid on Nov. 6. Proceeds will be used to refund the series 2005 GO bonds for debt service savings and to pay issuance costs.
In addition Fitch affirms its 'AA-' rating on the following GO bonds and certificates of obligation (COs):
--$3.2 million combination tax and revenue COs, series 2013;
--$2.3
million combination tax and revenue COs, series 2012;
--$2.9
million combination tax and revenue COs, series 2010;
--$1.3
million GO refunding bonds, series 2010;
--$9.3 million GO bonds,
series 2007;
--$18.9 million combination tax and revenue COs,
series 2007;
--$2.5 million GO bonds, series 2006;
--$3.14
million GO refunding and improvement bonds, series 2005.
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 of the city's Butler
golf course.
KEY RATING DRIVERS:
HEALTHY RESERVES MAINTAINED: The city has a fairly stable financial history. Strong financial flexibility is evident in the maintenance of high reserve levels.
DEPENDENCE ON SALES TAXES: The city relies heavily on sales tax revenues for operations, but Fitch notes its high reserve levels temper risk to volatility in sales tax performance.
MODERATE DEBT LEVELS: The city's overall debt burden is above average although total carrying costs are moderate, and near-term borrowing plans are limited. Principal amortization is rapid.
ECONOMIC GROWTH: Tax base and economic growth remained positive during the recession, but the region continues to suffer relatively high unemployment and low wealth levels. Proximity to Mexico and an extensive and expanding transportation network support strong international trade activity.
RATING SENSITIVITY
MAINTENANCE OF SOLID RESERVES: Given the city's reliance on economically sensitive sales taxes, maintenance of solid reserve levels is key to the rating.
CREDIT PROFILE:
The city of Harlingen has an estimated population
of roughly 74,950. It is located in south Texas near the U.S.-Mexico
border, encompassing almost 34 square miles in Cameron County.
STABLE FINANCIAL OPERATIONS WITH STRONG RESERVE LEVELS
The city's
financial reserves have remained strong, exceeding 30% of spending
annually since fiscal 2006. Modest drawdowns on general fund balance in
fiscal years 2008 to 2010 were primarily attributable to pay-go capital
outlays. The city ended fiscal 2012 with a $2.5 million operating
surplus after transfers and an unrestricted general fund balance of
$13.4 million, or a robust 37.1% of spending. Reserves comfortably
exceed the city's 90-day fund balance target. For fiscal 2013,
preliminary results point to a modest surplus due to better than
budgeted revenues. The fiscal 2014 adopted budget is balanced without
the use of reserves.
The general fund receives over 40% of its revenues from a 1.5% sales and use tax. This revenue source has grown at an average annual rate of 2.5% in the last 10 years. Despite the volatile nature of sales tax revenues, fiscal 2010 was the first time in a 17-year period that sales tax revenues declined (down 6.8%), but they rebounded within a year due to new retail growth in the area. In addition to the 1.5% sales and use tax for the general fund, the city collects a 0.5% sales tax for economic development programs.
Property taxes account for approximately one-third of total general fund revenues. The tax base is well diversified and has grown at a compound annual growth rate of 2.3% since fiscal 2009 to nearly $2.9 billion in fiscal 2014. The top 10 taxpayers represent a moderate 9.14% of the total.
MANAGEABLE DEBT LEVELS WITH LIMITED DEBT ISSUANCE PLANS
Key debt
ratios are moderate to above average. The city's overall debt burden is
$1,735 per capita and 4.1% of fiscal 2014 market value. Debt carrying
charges of approximately $3.7 million in fiscal 2012 were equal to 7.7%
of governmental spending. Principal amortization is rapid.
The city has no GO debt authorization and no plans to approach voters for additional authorization in the near term. Officials report that the city's capital improvement plan is being updated for other future needs and may include a moderate level of financing for upcoming development projects.
Pension benefits are provided through the Texas Municipal Retirement System (TMRS), a statewide agent multiple employer plan. The city's funding position is a healthy 99.5% as of December 2010. Other post-employment benefits (OPEB) are funded on a pay-go basis. OPEB liabilities are higher but still modest, with an UAAL as of September 2011 totaling $12.8 million, equal to 0.4% of market value. On a combined basis, the city's contributions to TMRS for pension and OPEB pay-go expense approximate 3.7% of governmental spending, bringing carrying costs (including debt service) to an affordable 11%.
DIVERSIFIED ECONOMY
The area economy has long been linked to the
agriculture, tourism, trade, and manufacturing sectors. However, the
local economy continues to diversify, aided by the city's economic
development incentive programs and an extensive transportation network
that includes the city-owned and operated Valley International Airport.
The city is slowly positioning itself as a regional healthcare hub. The Regional Academic Health Center, a branch of the University of Texas-San Antonio Health Science Center, has brought a nationally recognized institute of health science education and research to the Rio Grande Valley. The South Texas Veterans Administration Health Care Center at Harlingen was recently completed, and a $40 million surgical and ambulatory facility to supplement the center is now open, employing over 200 medical professionals.
The Bass Pro Shops completed construction of its retail store on a 110-acre site and opened in November 2011, spurring additional retail development and attracting more shoppers to the area.
Higher education is also a major economic component. Texas State Technical College Harlingen is a two-year institution whose new Articulation and Career Center, which opened in August 2011, offers degrees to area students from other universities in the state and the U.S. Fitch views these developments favorably, as they should promote stability and attract higher quality jobs to the region.
At 8.3% in Aug. 2013 unemployment levels have improved from the prior year but remain higher than state and the U.S. averages. Wealth levels are well below average compared to the state but are in line with those of other border communities.
Additional information is available at www.fitchratings.com.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=806167
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