TEXT - Fitch affirms Granbury, Texas GOs
Dec 19 - Fitch Ratings has affirmed its 'AA' rating on the following Granbury, TX's (the city's) debt obligations: --$9 million general obligation (GO) bonds; --$16.4 combination tax and revenue certificates of obligation (COs). The Rating Outlook is Stable. SECURITY The GO bonds and COs are secured by an annual property tax levy limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally secured by a pledge of net revenues of the city's water, sewer and electric utility system. KEY RATING DRIVERS PRUDENT FINANCIAL MANAGEMENT: The city's financial profile is characterized by substantial reserves and generally positive operating results. Structural balance was achieved during the recession through expenditure reductions and officials have maintained lean operations with continuing cost savings. SALES TAX RELIANCE: Credit concerns over the city's reliance on economically sensitive sales tax receipts for operations are partially offset by its large financial reserves, conservative budgeting, and demonstrated ability to make significant mid-year budget adjustments. Additionally, a low property tax rate provides flexibility in the event the city needs to adjust its revenue composition in the future. MANAGEABLE DEBT BURDEN: The city's overall debt level is expected to remain moderate as the city has no future debt plans. Near term governmental capital needs are supported by series 2011 bond proceeds, third-party grants and general fund monies. STABLE LOCAL ECONOMY: The local economy is sound, serving both as a bedroom community of Forth Worth and as a growing business center for Hood County. Tourism and recreation also benefit the city's employment and sales tax base. Government, education and medical service providers are among the leading employers, lending stability to the city's employment base. CREDIT PROFILE Granbury is located 25 miles southwest of Fort Worth with an estimated 2011 population of 8,050, representing a large 40% increase from the 2000 census total. FORT WORTH BEDROOM COMMUNITY / COMMERCE CENTER Granbury serves as the county seat and retail hub for Hood County and the surrounding area, drawing more than 60,000 people from within a 10 mile radius to the city's big-box stores. Lake Granbury, running through the historic downtown, and the 18,000 square-foot Granbury Resort Conference Center attract visitors from outside the region, also contributing to the city's sales tax base. Proximity to the metroplex, land affordability and lake access support a growing commuter and retiree population. New construction has stabilized the city's TAV during fiscal 2011 and 2012 on the heels of 15% average growth during the preceding four years. Fitch views management's expectation for 5% annual tax base growth over the next several years as somewhat optimistic but recognizes residential and retail development underway should support positive momentum. Commercial and industrial property comprises 27% of the city's tax base. The city has moderate taxpayer concentration with the top 10 taxpayers making up 9.5% of total TAV, represented primarily by real estate, retail, and health care organizations. Soon to be completed transportation projects including completion of Northeast loop 567 and airport expansion projects (additional hangars and a runway extension to better accommodate corporate jets) bode well for the city's future growth prospects. SOUND FINANCES; VOLATILE SALES TAXES Sales tax receipts provide 56% of the city's operating revenues, followed by property taxes (15%), franchise taxes (14%), fees and service charges (7%). Sales tax receipts increased by a total of 28% during fiscal 2007 and 2008 before registering a 16% loss during the next two years reflecting the impact of the recession on the general economy. Officials trimmed expenditures, primarily through reduced capital outlays and a hiring freeze to achieve structural balance and maintain the city's reserves. Fiscal 2011 sales tax receipts of $5.8 million are up 9% year-over-year reflecting new retail establishments opened during the year and improvement in the local economy. Growth in property and franchise tax revenues and cost savings also contributed to a $1 million (10.4% of spending) net operating surplus. The unrestricted general fund balance of $4.2 million represents a high 43.4% of spending and transfers out and an important mitigant to inherent revenue volatility. Fitch expects reserve levels to remain at or above the city's policy minimum of 25% of spending and for operations to remain balanced. Management estimates an operating surplus after transfers of approximately 9% of spending in fiscal 2012, attributed to additional strengthening of sales tax receipts coupled with cost savings which allowed the city to fund several one-time projects. Fiscal 2013 year-to-date performance positions the city to outperform their budget which is based on an approximate 2% operating surplus after transfers. MANAGEABLE DEBT BURDEN Overall debt is moderate at 2.9% of market value but higher per capita at $4,824 given the smaller population. Principal amortization is just above average at 60.5% in 10 years. Near term capital expenditures are focused on airport hangars to meet a strong demand from private and corporate interests, park and street improvements. Carrying costs for debt service, pension actuarially required contributions and OPEB paygo attributed to governmental operations total $3.6 million, or 26.8% of fiscal 2011 spending. Granbury's pension plan is provided through the Texas Municipal Retirement System (TMRS), with an adequately funded position of 76.4% as of Dec. 31, 2011, based on the TMRS investment rate assumption of 7%. The city provides other post-employment benefits (OPEB) to retirees in the form of health care benefits through a single employer self-funded plan. The unfunded actuarial accrued liability (UAAL) for the city's OPEB is a small $198,487 as of Dec. 31, 2010 representing a negligible amount of the city's market value.