TEXT - Fitch rates Williamson County, Texas bonds
Nov 14 - Fitch Ratings has assigned the following ratings to Williamson County, Texas' bonds: --$32.9 million limited tax refunding bonds, taxable series 2012 'AAA'. The bonds are scheduled for a competitive sale the week of Nov. 26, 2012. Proceeds from the refunding bonds will be used to refund portions of the county's outstanding debt for interest savings. In addition, Fitch assigns an 'AAA' rating to the following county bonds: --$364.7 million (pre-refunding) unlimited tax bonds outstanding; --$425 million (pre-refunding) limited tax and pass-through toll revenue obligations outstanding. The Rating Outlook is Stable. SECURITY The bonds are limited tax obligations payable from the county's $0.80 constitutional tax rate. The pass-through toll revenue bonds are payable from payments received by the county pursuant to a pass-through toll agreement between the county and the Texas Department of Transportation (TxDoT) and are also secured by a property tax limited to $0.80 per $100 of taxable assessed valuation (TAV). The outstanding unlimited tax bonds are secured by an unlimited ad valorem tax levied against all taxable property in the county. KEY RATING DRIVERS FISCAL STEWARDSHIP: The county has accumulated a large general fund balance through conservative budgeting and cost management, a portion of which has been identified to fund annual capital needs under a recently announced strategy. Fitch notes that the county's projections continue to reflect a high level of financial flexibility commensurate with its current rating. STABLE LOCAL ECONOMY: Williamson County benefits from the Austin metropolitan area's diverse economy and employment base. The county's unemployment rate trends below state and national averages on the strength of consistent new job creation. HEALTHY TAX BASE: The county's TAV is diverse and sizable. Although TAV growth is diminished from its rapid preressionary pace, the county has registered solid growth over the past two years, with further gains anticipated based on development activity currently underway. HIGH OVERALL DEBT: High overall debt results from the overlapping debt of many high-growth school districts, cities and special districts within the county. CREDIT PROFILE AUSTIN METRO COMMUNITY Williamson County is located north of Austin with a population of about 440,000. The county's employment base grew by a strong 3.7% year-over-year through August 2012, reducing its unemployment rate to 5.9%, below state and national rates of 7.0% and 8.2% respectively for the same period. Industry in the county includes manufacturing, government, education and agribusiness. While the county continues to benefit from an abundance of high technology firms, including the corporate headquarters of Dell Inc. (Fitch Issuer Default Rating of 'A' with a Stable Outlook), economic development efforts to diversify are evidenced by solid job growth in higher education, healthcare, manufacturing, and retail. Fiscal 2011 median household income exceeds state and national averages by more than 30%. Based on the county's strong demographic profile, destination retailers have been attracted to the area and serve as a magnet for continuing regional development. The local economy additionally benefits from Sun City, Texas, a 10,500 home, active retirement community residing just outside the Georgetown City limits. RESILIENT TAX BASE Williamson County's TAV grew by almost 50% between fiscal years 2006 and 2009 as residential and commercial expansion spilled north from Austin. Not immune to the recession, TAV remained relatively flat in fiscal 2010 and 2011, with a return to modest growth in fiscal 2012. On the heels of 2.4% and 3% TAV growth in fiscal years 2012 and 2013, the County Appraiser's office estimates an additional gain of 3% to 4% for fiscal 2014. The estimate takes into account known development activity and further appreciation of existing properties, which Fitch notes is consistent with regional trends. Fiscal 2013 TAV is sizable at $35.2 million. The top 10 taxpayers comprise a small 2.8% of total TAV and are represented by technology, energy, healthcare, real estate and retail sectors. SYSTEMATIC APPLICATION OF RESERVES The county's conservative financial profile is exemplified by general fund reserve levels well in excess of policy targets. A fiscal 2011 unrestricted general fund balance of $68.6 million (58.4% of expenditures and transfers out) reflects another year of strong revenue performance and cost savings. Additionally, the county maintains sound reserve levels in its debt service and road and bridge funds, with fiscal 2011 year end balances of $17.7 million and $12.2 million respectively. A recently announced strategy will apply up to 25% of surplus general funds, in excess of the policy unrestricted fund balance target (increased from 30% to 35% of budgeted expenditures)to fund capital projects. Officials anticipate the strategy will generate up to $8 million annually for capital projects and defray the cost of debt service, while continuing to provide high reserve levels, projected to approximate 50% of budgeted expenditures by fiscal 2015. Fitch takes comfort in the county's historically conservative fiscal management and views the county's fund balance projections as consistent with its current rating level. The county estimates fiscal 2012 general fund cost savings of $5 million which will be applied to the annual capital fund transfer. To address long-term county road maintenance, the fiscal 2013 balanced budget includes a shift of $.01 per $100 of TAV to the road and bridge fund from the general fund. HIGH DEBT BURDEN / ONGOING CAPITAL NEEDS The county's debt service burden is high at 34% of fiscal 2011 general fund spending and transfers out; principal amortization is about average at 49% within 10 years. Significant issuance by 16 school districts, 25 special districts, and 14 cities located within the county contribute to the county's high overall debt level (8.5% of market value). Fitch anticipates the county's overall debt to remain elevated based on long-term population growth projections for the region. The county's capital plan is focused on transportation improvements originating from a regional planning process. State monies support a portion of the transit projects pursuant to pass-through funding agreements between the county and Texas Department of Transportation, under which the county anticipates further issuance during fiscal 2013 which is not expected to increase the interest & sinking fund tax rate. AFFORDABLE PENSION LIABILITIES The county provides pension benefits through the Texas County and District Retirement System (TCDRS). Funding levels are satisfactory at nearly 85% (77% using a more conservative 7% investment return assumption), and the county routinely funds 100% of its annual required contribution (ARC) to TCDRS. In fiscal 2011 the county paid $7.9 million into TCDRS, or a manageable 6.3% of spending and transfers out. The county provides other post-employment benefits (OPEB) through a self-funded single-employer plan. The unfunded actuarial accrued liability is very low at $47.7 million, representing just 0.1% of the county's market value or 20% of fiscal 2011 annual governmental spending. Fitch generally views significant under-funding of the ARC as a credit concern, and funding has been very low over the past three fiscal years, with contributions well under the ARC (12% in fiscal 2011). However, the modest liability mitigates Fitch's concerns.
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