TEXT - Fitch rates Mansfield, Texas GOs 'AA'
Nov 20 - Fitch Ratings has assigned an 'AA' rating to the following Mansfield, Texas (the city) bonds: --$5 million general obligation (GO) refunding bonds, tax exempt series 2013; --$3.2 million GO refunding bonds, taxable series 2013; --$5.6 million combination tax and revenue certificates of obligation (COs), series 2013. The bonds are scheduled for a negotiated sale the week of December 26. GO proceeds will be used to refund a portion of the city's outstanding tax-supported debt and CO proceeds will finance street improvements. In addition, Fitch affirms the following: --$95.3 million (pre-refunding) outstanding GO bonds and COs at 'AA'; --$12.5 million Mansfield Economic Development Corporation (EDC) outstanding sales tax bonds at 'AA-'; --$12.2 million Mansfield Park Facilities Development Corporation (PFDC) outstanding sales tax bonds at 'AA-'. The Rating Outlook is Stable. SECURITY The GO bonds and COs are secured by a limited ad valorem tax levied against all taxable property in the city; the COs are secured further by a pledge of net revenues of the city's water and wastewater system, not to exceed $1,000. The outstanding EDC and PFDC sales tax bonds are special obligations of each corporation and are payable from and secured by a first lien on and pledge of a separate 1/2 of 1% sales and use tax levied within the city for the benefit of the corporations. Both the EDC and PFDC were formed by the city to promote and provide for economic development. KEY RATING DRIVERS PRUDENT FINANCIAL MANAGEMENT: The city's policies and stewardship have contributed to sound general fund balances in compliance with policy levels. Management budgets conservatively and historically achieves operating surpluses. STABLE LOCAL ECONOMY: The city's profile is characterized by above-average income and relatively low unemployment, resulting in part from an expanding employment base. HEALTHY TAX BASE GROWTH: Access to the broad Dallas-Fort Worth (DFW) economy and regional transportation network has led to strong taxable assessed valuation (TAV) growth. Proximity to the DFW metroplex, coupled with the city's ongoing development of infrastructure, position it for continuing residential and commercial/industrial expansion, the realization of which could lead to positive rating action. HIGH OVERALL DEBT: High overall debt includes overlapping debt and reflects the significant enrollment-based facility needs of the school districts residing in the city. An above-average debt amortization rate contributes to the city's high carrying costs, consisting of its debt service, pension and other post-employment benefits (OPEB) contributions. The city's near term capital needs are moderate. SOUND DEBT SERVICE COVERAGE: The sales tax revenue bond ratings reflect ample coverage of maximum annual debt service (MADS) from pledged sales tax collections and sound legal protections. CREDIT PROFILE Mansfield is located within the ninth largest metropolitan area in the nation, home to more than a million residents within a 15-mile radius. The city's population of nearly 60,000 has more than doubled since the 2000 census. A significant amount of developable land remains within Mansfield's 38.6 square mile land mass. HIGH-GROWTH FORT WORTH COMMUNITY Located in the southeastern portion of Tarrant County, the city is directly connected to nearby DFW, the DFW International Airport and surrounding communities by a robust and expanding transportation network. The city's five industrial parks are home to a reported 115 industries employing 5,000 workers, with significant expansion plans recently announced by Klein Tools (manufacturer of high-quality hand tools) and Mouser Electronics (a Berkshire-Hathaway company and distributor of electronic parts). A growing medical district is evidenced by Methodist Hospital's $180 million commitment to facilities within the city, including $27 million of completed expansions, a hospital opening in fiscal 2012, and future expansion over 22 acres. Additional new facilities were opened in fiscal 2012 by the Arlington Orthopedic Associates and Women's Health Pavilion, with a third assisted living/medical facility under development. Additionally, the city announced that two hospitals (totaling an approximate $250 million investment) have been slated for future development. Fiscal 2012 building permit values increased 17% year over year led by new commercial projects, including retail, restaurants, grocers, and medical district expansions. Residential growth continues but remains well below prerecession levels. The city reports 273 platted residential lots available for development and an additional 537 available for potential future development among its many master planned communities and subdivisions. Given its infrastructure and proximity to the metroplex, the city is positioned for significant growth, the resumption of which could lead to positive rating action. SIZEABLE AND DIVERSE TAX BASE The fiscal 2013 tax base of $5.1 billion is 62% residential, with a growing commercial and industrial presence. TAV expanded by a compound annual growth rate (CAGR) of 5.7% between fiscal 2006 and 2013 as new commercial development compensated for softness in the residential market. Fitch anticipates the magnitude of reported commercial development projects and industrial expansions to bode well for continuing tax base growth in the near term. The top ten taxpayers comprise a moderate 7.8% of fiscal 2012 TAV. CONSISTENT FINANCIAL PERFORMANCE The city generally outperforms the budget and maintains sound reserve levels in compliance with its policy target (i.e. unrestricted general fund reserves equal to 25% of the operating budget). A $1 million (2.9% of expenditures) operating surplus net of transfers increased the fiscal 2011 general fund unrestricted balance to a strong 24.8% of expenditures and transfers out. Unaudited fiscal 2012 results report a $1.5 million operating surplus led by strong sales tax and building permit activity, $650,000 of which will be applied to land acquisition in connection with the city's historic downtown revitalization project. Management projects continued modest revenue growth and cost management to support structural balance and preserve the city's reserves into the foreseeable future. HIGH DEBT METRICS EXPECTED TO REMAIN ELEVATED High overall debt equal to 10.4% of the city's property values incorporates overlapping debt which includes significant debt issuance of rapidly growing local school districts. The city's debt burden on the general fund is also high at 25.5% of general fund spending and transfers out, reflecting the infrastructure growth needs of the city and a rapid debt amortization rate (70% retired in 10 years). Fitch anticipates elevated debt levels to persist over the next five to 10 years in light of continuing growth pressures. The city participates in the Texas Municipal Retirement System, with an adequate fiscal 2011 funded position of 75% based on Fitch's more conservative investment rate of 7%. The city provides OPEB to retirees for health insurance and fully funds its annual required contribution each year; the city also established an OPEB trust in 2008. The city's carrying costs, including debt service, pension and OPEB contributions are considered high at 36.7% of fiscal 2011 general fund expenditures and transfers out. SOUND SALES TAX REVENUE BOND COVERAGES The bonds of EDC and PFDC are secured by a gross pledge of separate 1/2-cent sales tax revenues. The PFDC is a 4B nonprofit corporation created in 1992 following the passage of a 1/2 of 1% sales tax. The EDC is a 4A corporation that was formed in 1997 with the passage of a separate 1/2 of 1% sales tax. The PFDC has focused on various parks and recreation projects since its creation, while the EDC has helped attract business to the city through location assistance and infrastructure improvements. In addition to sales tax revenues, both corporations receive gas royalty monies that are applied to their respective mission objectives. MADS coverage is sound at 2.3x and 2.7x for PFDC and EDC, respectively, based on fiscal 2011 sales tax revenues. Following 14.7% CAGR in the six years preceding the recession, sales tax collections leveled out in fiscal 2009 and 2010 before registering a modest 1.6% gain in fiscal 2011. Management reports a 7.7% increase in unaudited fiscal 2012 collections reflecting an improved economy and the impact of an increasing number of new retail establishments. Fiscal 2013 sales tax receipts are budgeted at a conservative 1% increase over fiscal 2012 actuals. The city has no near-term borrowing plans for EDC, which should help maintain debt service coverage at healthy levels. Management reports a potential $3 million PFDC debt issue in fiscal 2015 or 2016, which debt will be layered into outstanding debt so that the current MADS level will not change. Legal provisions for both securities are adequate with a two-pronged additional bonds test requiring gross revenues received by the corporations during any 12 of the preceding 15 months to be 1.35x MADS and 1.5x average annual debt service. The reserve requirement for each of these bonds will be cash-funded to the IRS standard. Reserves historically have been funded with surety bonds. FAVORABLE DEMOGRAPHIC PROFILE A favorable demographic profile, notable park system and good community services contribute to Mansfield's frequent ranking as a desirable city in the U.S. The city's median household income is very high at 177% of the U.S. average. An expanding employment base contributes to a low unemployment rate of 6.0% for August 2012, below the state (7.0%) and national (8.2%) averages for the same period.