Fitch Rates Bastrop, TX's GO Refunding Bonds 'AA-'; Outlook Stable
Source: Business Wire
--$2.56 million series 2010.
The bonds are expected to sell via negotiation on June 21, 2010.
In addition, Fitch affirms the following:
--approximately $13.8 million in outstanding
GO bonds at 'AA-';
--approximately $10.6 million in outstanding certificates of obligation at
'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Despite growth pressures, Bastrop has
maintained a sound financial position evidenced by healthy fund balance
levels.
--The city benefits from its proximity to the Austin area economy.
--Sales taxes, vulnerable to economic fluctuations, remain the city's
largest source of general fund revenues, making the city's strong financial
reserves an important mitigating credit feature.
--The city's relatively limited tax base continued to expand despite the
economic recession.
--Reflective of its accelerated population growth over the past decade, the
city's direct and overall debt ratios are high.
KEY RATING DRIVERS:
--The maintenance of strong financial
reserves is key to preserving current credit quality given its dependence on
economically volatile sales tax revenues for operations.
--Maintenance of a manageable debt burden is essential to the rating, given
the growth related pressures of the city and overlapping jurisdictions.
SECURITY:
The GO bonds are secured by a pledge of ad valorem taxes levied annually within the limits prescribed by law against all taxable property. The certificates of obligation are further secured and payable from a limited pledge (not to exceed $1,000) of surplus net waterworks and sewer system revenues. The state constitution and city charter limit ad valorem taxes for general and debt service purposes to $2.50 per $100 of taxable assessed valuation (TAV).
CREDIT SUMMARY:
The city is located 30 miles southeast of Austin and 23 miles southeast of Austin-Bergstrom International Airport (ABIA) along the Highway 71 corridor to Houston. Diversifying beyond its historical agricultural base, county employment gains over the past several years have been centered in the service, government, and retail sectors. Bastrop's proximity to Austin and ABIA in conjunction with land affordability encouraged substantial development in the past few years. While residential development has slowed from the fiscal 2006 peak level, commercial construction continued at a steady pace even through the economic recession, adding to the city's property tax base and sales tax receipts. TAV growth within the city has averaged nearly 10% annually in the last five fiscal years.
General fund financial performance is strong, historically buoyed by sizable operating subsidies from the city's electric utility. The city's general fund resources are concentrated. In fiscal 2009, sales tax receipts comprised nearly 37% of total resources, followed by 17% in property taxes, and 13% of electric utility transfers. The city's strong general fund reserves and conservative budgetary practices somewhat mitigate concerns over its dependence on sales tax and its vulnerability to economic cycles. At Sept. 30, 2009, the city's unreserved general fund remained strong at nearly $2.2 million, or 31.6%, well above the city's new formal policy of maintaining a minimum of 20% of spending. For fiscal year 2010, management indicated that results would be break-even to a modest surplus by the close of the year.
In April 2010, the city council adopted a set of favorable formal financial management policies. In addition to the formal 20% unreserved general fund balance policy, the council is required to adopt balanced budgets and restrict the use of fund balance reserves for non-recurring expenditures only. Among others, the policies also require the preparation of a capital budget, which historically was only prepared for the water and sewer enterprise, revenue management and expenditure control requirements, asset management, and debt management. The council is also focused on reducing general fund dependence on the electric utility transfers with fiscal 2010 being the first year of a five-year phased reduction in transfers. However, an offsetting increase in revenue will be available from administrative charges allocated to the water and sewer utility enterprise. Management is undergoing internal rate studies to allocate charges and make recommendations for rate adjustments.
Direct and overall debt levels are high due to the city's capital needs associated with its accelerated population growth. The high debt levels are somewhat offset by an above-average amortization rate. Near-term debt plans are limited and long-term capital requirements will likely be wrapped around the existing debt to minimize impact to the city's debt service tax rate. The city maintains nearly $2 million in remaining authorization from the bond projects approved by voters in 2003. The city's total tax rate is above-average compared with other suburban communities in the Austin MSA.
Applicable criteria available on Fitch's
website at 'www.fitchratings.com':
'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, Austin
Gabriela Gutierrez, +1-512-215-3731
Steve Murray, +1-512-215-3729
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
