Fitch Rates Garland, Texas' Bonds 'AA+'; Outlook Stable
Source: Business Wire
--$139,550,000 combination tax and electric utility system revenue refunding bonds, series 2010;
--$3,250,000 combination tax and revenue certificates of obligation (COs), series 2010.
The bonds are expected to sell via negotiation on Feb. 16, 2010.
In addition, Fitch affirms:
--approximately $285 million in outstanding general obligation bonds at 'AA+';
--approximately $112 million in outstanding COs at 'AA+';
--approximately $360,000 in outstanding tax notes at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The city of Garland, TX is part of the larger Dallas-Fort Worth-Arlington MSA economy and employment base. Anchored by manufacturing and distribution, Garland's overall economic base remains sound.
-- Through its conservative financial management and prudent fiscal policies, the city has continued to maintain strong financial reserves, despite financial pressures associated with the recession.
--The city's taxable base is solid and diverse, although valuations are anticipated to decline modestly in the near term; however, management expects development along tollway and interstate growth corridors to stabilize taxable values.
--Direct debt levels remain moderate while overall debt levels are high due primarily to various overlapping school districts. The current offering slows the overall amortization rate, but remains slightly above average.
RATING DRIVERS:
--Over the near term, management will be challenged to maintain comparable financial results in light of the city's maturing economy and economic softening as evidenced by a slowed residential and commercial market and year-to-date sales tax revenue declines.
--Maintenance of manageable debt levels, given that capital needs will continue to pressure the city's overall debt burden, is essential to sustain the current rating.
SECURITY:
The bonds are payable from a property tax levy, limited to $2.50 per $100 taxable assessed valuation (TAV); they are further secured by a limited pledge (not to exceed $1,000) of the net revenues of the city's electric utility system. The COs are also payable from a property tax levy and are further secured by a limited pledge (not to exceed $1,000) of the net revenues of the city's water and sewer system.
CREDIT SUMMARY:
Garland benefits from its location within the Dallas-Fort Worth metropolitan area, surrounded by major transportation corridors. Population growth has been minimal since 2000 as the city is near full build-out with a flat-to-stable population base, currently estimated at 226,000 residents. Local wealth levels approximate both state and national averages. Garland's industrial market is the second largest in the Dallas-Fort Worth metro area; manufacturing and distribution remain the primary economic engines for the city. City unemployment rates, like most of the nation, have trended upward and for December 2009 were reported at 8.2%, slightly above the state's average of 8%, but much better than the nation's rate of 9.7% during the same period. As the city approaches build-out, which is expected by 2012, TAV growth has slowed to a five-year annual average of 4%, down from consistently higher annual growth rates posted before 2003. However, commercial/retail development along the George Bush Tollway to the north, which includes the Firewheel Town Center, and along IH-30 in the southern portion of the city, which includes the Harbor Point retail center, has enhanced the city's retail base. City officials continue to review redevelopment efforts (primarily focused on commercial/retail/office space) that could generate further tax base expansion.
The city has historically maintained solid general fund balances; audited fiscal 2008 results were better than originally anticipated and comparable to prior years' levels with an unreserved general fund balance at $17 million or roughly 13% of spending. The city adheres to an informal general fund balance target of 30 days of spending, and typically audited results outperform the budget due to conservative fiscal practices and effective cost controls. Proactive fiscal management is evident in the city's monitoring, planning, and forecasting practices used to analyze how an extended economic downturn may affect city finances over the near term. Accordingly, city management initiated additional salary savings and closed a library in fiscal 2009. As a result, it is currently anticipated that the city will close fiscal 2009 with a $1.6 million surplus (unaudited). The fiscal 2010 budget was adopted with a manageable $1.5 million fund balance drawdown.
Garland's direct debt levels are moderate and well within the city's policy of limiting tax-supported debt to 5% of TAV. Overall debt ratios are high, primarily due to overlapping school district debt. Self-supporting debt of the city, primarily from the electric, water, and wastewater utilities, represents about 40% of total general obligation debt, thereby substantially reducing the impact on the city's debt service tax rate. Prior to this offering the city's amortization rate was rapid (68% retired within 10 years), but given the size of the current offering, the pace of amortization slows to about 55%, which is still considered slightly above average. The city annually adopts a comprehensive five-year capital improvement plan (CIP). Although the 2010-2014 CIP has been scaled back to contend with the current economic climate, the city maintains about $180 million in authorized but unissued bonds.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:
'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings
Gabriela Gutierrez, 512-215-3731, Austin
Amy Laskey, 212-908-0568, New York
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
