Fitch Rates Schertz, Texas' Series 2008 GOs 'AA-'

AUSTIN, Texas--(Business Wire)--
Fitch assigns an initial 'AA-' rating to the Schertz, Texas' (the
city) $16.5 million general obligation (GO) bonds, series 2008. Fitch
also assigns its 'AA-' rating to the city's $22.9 million in GO bonds
and $24.7 million in certificate of obligation outstanding. The bonds
are scheduled to sell the week of August 4th via a negotiated
offering. The Rating Outlook is Stable.

The bonds are direct obligations of the city and are payable from
a limited ad valorem tax levied on all taxable property in the city.
Proceeds will finance parks and recreation and street improvements.

The 'AA-' rating reflects the city's sound financial profile and
steady economic growth, as well as its moderate capital needs and
limited borrowing plans. Reserve levels are healthy, and recent
sizeable gains in sales tax revenues reflect a sound local and
regional economy. Fitch also considers the city's direct debt profile
a positive credit factor. However, overlapping debt levels are above
average, driven primarily by borrowings of the local school district.
Fitch believes the San Antonio metropolitan area will weather the
current economic slowdown better than many cities and that Schertz
will resume economic and tax base expansion at a healthy pace when the
recovery occurs.

Schertz is located roughly 15 miles east of downtown San Antonio.
Both Interstate Highway 35 (I35)--which connects San Antonio and
Austin, and Interstate 10 (I10)--the main highway that connects San
Antonio and Houston--cross the city, presently an ideal setting for
warehouse and distribution oriented businesses. The city has a 2008
estimated population of roughly 32,000, which represents a robust 70%
increase from 2000. In addition to warehouse and distribution
operations, the city's economy benefits from extensive retail activity
along the interstate highways. Also, nearby Randolph Air Force Base is
a positive economic influence on the city.

The city has managed to meet the service demands of a growing
population while maintaining a sound financial profile. The general
fund has consistently reported positive operating results, and reserve
levels have climbed steadily over the past five fiscal years. In
fiscal 2007 the general fund reported net income of roughly $2.0
million, and the unreserved fund balance was $9.5 million, or roughly
68% of spending and transfers out. Fitch believes a principal
challenge for the city going forward will be preserving its healthy
financial status once the fast pace of growth resumes and service
demands once again increase.

The fiscal 2008 budget featured a decline in the overall property
tax rate of more than two cents and a sizeable 20% increase in general
fund expenditures from the prior year actual results. Preliminary
general fund results point to a drawdown in operating reserves of
roughly $1.5 million, as the city has chosen to apply some of its
large fund balance to one-time outlays. Sales tax revenues, which have
climbed by an average of more than 25% annually since fiscal 2004, are
forecast to generate a healthy 17% increase for fiscal 2008. This gain
will be in line with original budget projections. In light of the
current economic slowdown, city officials plan to budget a more
conservative 7% increase in sales tax receipts for fiscal 2009.

Growth in taxable assessed valuation (TAV) also accelerated over
the past several fiscal years, and for fiscal 2008 the TAV climbed
more than 17% to more than $1.9 billion. Reflecting the current
economic environment, the preliminary fiscal 2009 TAV reflects a more
modest gain of roughly 5%. Further evidence of the slowdown is found
in housing starts, which declined from a recent peak of 523 in 2006 to
308 in 2007. Despite the drop, housing markets in Texas' major cities
have weathered the current slump better than those of many other
Sunbelt cities, and Fitch believes the recovery in Texas markets will
be relatively quick when it occurs.

Overall debt levels are above average at more than $6,000 per
capita and nearly 10% of fiscal 2008 TAV. The majority of overlapping
debt is that of Schertz-Cibolo-Universal City Independent School
District (GO debt rated 'A+' by Fitch Ratings). The city's near term
borrowing needs presently are minimal, as Schertz is focusing on
completion of projects approved by voters in a 2006 election that
authorized $37.5 million of GO bonds. The pace of debt retirement is
slightly below average at 43% in ten years.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Steve Murray, +1-512-215-3729
Jose Acosta, +1-512-215-3726 (Austin)
Media Relations:
Sandro Scenga, +1-212-908-0278 (New York)

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