TEXT - Fitch affirms Abilene, Texas 'AA+' GOs
Nov 20 - Fitch Ratings has affirmed its 'AA+' rating on the following Abilene, Texas (the city) bonds: --$52 million outstanding general obligation (GO) bonds; --$54 million outstanding combination tax and revenue certificates of obligation (CO). The Rating Outlook is Stable. SECURITY The GO bonds and COs are secured by a continuing direct ad valorem tax levied against all taxable property within the city, subject to a $2.50 per $100 assessed valuation limitation prescribed by law; the COs are secured further by a pledge of the net revenues of the city's water and sewer system, not to exceed $2,500. KEY RATING DRIVERS PRUDENT FINANCIAL MANAGEMENT: The city's management has demonstrated conservative stewardship and commitment to adhere to policies, practices which have contributed to the city's strong financial position. SALES TAX DEPENDENCE: The city relies heavily on sales tax revenues for operations. But Fitch notes the city's high reserve levels tempers risk to volatility in sales tax performance. MODEST DEBT BURDEN: Overall debt levels are low, assisted by substantial state support for overlapping school district debt. Direct debt is rapidly amortized and the city's near term capital needs are manageable. STABLE LOCAL ECONOMY: Located in West Texas, the city serves as a commercial, educational, and cultural hub. The area economy demonstrated resiliency during the recession as growth, although modest, resumed and taxable assessed valuation (TAV) gains were recorded in each of the last five years. Unemployment rates typically are lower that state and national levels but wealth levels trail the state and nation. CREDIT PROFILE STRONG FINANCIAL POSITION ENABLED BY PRUDENT MANAGEMENT The city's financial profile is sound with strong general fund balance reserve levels and limited capital requirements. In fiscal 2009, the city promptly restored its unreserved general fund balance after falling slightly below its formal target for two years. The city maintains a minimum 20% reserve policy with an optimum target at 25%. For fiscal 2010, tight budgetary measures contributed to the city's ability to further add to fund balance despite a modest decline in revenue. Economically sensitive sales tax receipts typically comprise around 40% of total revenues in the general fund. In fiscal year 2011, the city's receipts jumped roughly 17% from the prior year level. However, this hike was identified as a non-recurring activity and the revenue increase was prudently reserved for non-recurring capital outlays. The unrestricted general fund balance at fiscal 2011 year-end was $25.1 million or 36.1% of spending and transfers out. The reserves in excess of policy level were used during fiscal 2012 to fund two years' worth of capital projects instead of issuing COs as previously planned. Similar sales tax receipts were generated in fiscal 2012. Accordingly, the increment identified as non-recurring is being reserved for pay-go outlays. The fiscal 2013 budget is structurally balanced. LOW DEBT LEVELS WITH MANAGEABLE CAPITAL NEEDS Abilene has a modest overall debt burden at just under 2% of market value (MV) and less than $1,000 per capita. Notably, these ratios benefit from the city's ability to fund its last two years of capital projects with cash reserves and are adjusted to account for state support of overlapping school district debt at roughly 30%. Principal amortization of direct debt is well above average at over 80% in 10 years. The city's 2012-2016 capital plan is a manageable $10 million. The city participates in the Texas Municipal Retirement System (TMRS), with an adequate fiscal year 2011 funded position of 92% based on a conservative assumed 7% investment rate of return. The city provides supplemental death insurance as its only other post-employment benefit (OPEB) provided to active employees and retirees. This benefit is also administered by TMRS; the annual contribution is nominal and has not exceeded $50,000 in any of the last three years. The city's carrying costs, including debt service, pension and OPEB contributions are considered moderate at 21% of fiscal 2011 spending. TAX BASE GROWTH The city's tax base is diverse and grew by a compound annual growth rate (CAGR) of nearly 5% between fiscals 2007 and 2012 despite the economic slowdown and without one single year of decline. Some of the increase in TAV was driven by commercial investment (most notably in the healthcare sector), as well as residential valuations that held up well in Abilene. Additionally, located just outside of the city is the Horse Hollow Wind Energy Center, considered to be the world's largest wind development with 421 turbines spread across roughly 60,000 acres. This development has attracted various wind energy companies to set up manufacturing and support operations within the city. ECONOMIC HUB IN RURAL AREA Abilene is located 150 miles west of Fort Worth, along Interstate 20, in Taylor County. The estimated city population is 117,000, including about 6,100 military and civilian personnel stationed at Dyess Air Force Base. The city's primary employment sectors are government, education, healthcare, and retail. The city is home to two public hospitals and six higher education institutions including: Abilene Christian University (enrollment of 4,000), Hardin Simmons University (2,500), McMurry University (1,400), Cisco College (2,500), Texas Tech University School of Nursing, and Texas State Technical College. While the city's wealth levels are below the state and nation, the unemployment rate (6.5% for July 2012) is typically better than that of the state and U.S.