TEXT - Fitch affirms Ellis County, Texas 'AA' GOs

Fri Feb 15, 2013 12:10pm EST

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Feb 15 - Fitch Ratings affirms the underlying 'AA' rating on Ellis County,
Texas' (the county) outstanding general obligation bonds (GO) as follows: 

--$54.6  million GO bonds at 'AA' (on a non-accreted basis, excluding series 
2010 and 2011 GO refunding bonds which are not rated by Fitch). 

The Rating Outlook is Stable. 

SECURITY: 

The bonds are secured by a limited ad valorem tax pledge of the county, not to 
exceed $0.80 per $100 of taxable assessed valuation (TAV). 

KEY RATING DRIVERS

STABLE FINANCIAL PROFILE:  The county maintains its sound financial position and
solid reserves in line with historic trends. Conservative spending and budgeting
practices typically enable financial performance that exceeds budget. Management
maintains some revenue flexibility in its moderate overall tax rate.

ECONOMIC PROSPECTS FAVORABLE: Ellis County is still fairly rural but benefits 
from its proximity to the larger Dallas-Fort Worth economy and employment base. 
Local unemployment hovers slightly above the state although below the nation. 
Fitch believes additional economic expansion and diversification appears 
reasonable over the intermediate-term. 

TAX BASE STAGNANT: SOME CONCENTRATION: Taxable assessed valuation (TAV) trends 
have been flat since the recession primarily due to a weakened housing market. 
The tax base has historically experienced healthy rates of growth. Taxpayer 
concentration is moderately high. 

MIXED DEBT PROFILE: Overall debt levels are high, reflective of the area's 
capital needs from rapid population gains in prior years.   Nonetheless, the 
county maintains a slightly better than average pace of amortization and 
carrying costs are manageable. Management has no near-term debt plans and 
capital needs appear moderate, assisted by pay-go spending. 

RATING SENSITIVITIES

Material deterioration in county's stable reserve levels that provide healthy 
financial flexibility could lead to a negative rating action.

CREDIT PROFILE   

Ellis County is located in north central Texas, immediately south of and 
accessible to the larger Dallas-Fort Worth metro economy and employment base. 
Affordable land along major highways spurred residential development over the 
past decade, which in turn fueled rapid gains in population that is currently 
estimated at 153,000. Nonetheless, a sizeable portion of the county remains 
rural in nature. Income and wealth levels are mixed, but generally better than 
average.

TREND OF STABLE FINANCES

The county's financial position remains stable and comparable to prior years, 
characterized by solid general fund reserves. Since fiscal 2002, general fund 
reserves have remained at no less than 21% of spending. Property taxes provide 
most of the county's operating revenues. The district has generated operating 
surpluses in three of the last five fiscal years, assisted by conservative 
financial management practices and the implementation of some cost-saving 
measures. Drawdowns on reserves are typically due in part to pay-go capital 
spending. 

For fiscal 2011, the county added modestly to reserves after a cumulative draw 
of about $1 million over the prior two fiscal years. This increased unrestricted
general fund reserves slightly to $8.2 million or approximately 24% of spending.


Liquidity strengthened in fiscal 2011 as well with general fund cash and 
investments totaling nearly $10 million or over three months of general 
operational spending. Management anticipates adding another $400,000 to reserves
at fiscal 2012 year-end. Fiscal 2012 operating results were assisted by a modest
$0.02 per $100 TAV increase to the county's relatively moderate overall tax 
rate, which was maintained in fiscal 2013 and has served to offset the flat TAV 
trends.  Fitch views positively the recent adoption of a formal fund balance 
policy that targets reserves equal to a higher 120 days of spending as evidence 
of management's commitment to maintaining and enhancing its already solid 
financial profile. 

The fiscal 2013 adopted operating budget was balanced; general fund spending 
remained fairly flat at $36.1 million. Year-to-date operations are reportedly 
running in line with budget.  Over the near-term, management is proactively 
considering further cost-saving options, the most material of which could 
include the privatization of county jail operations. 

YEAR-OVER-YEAR UNEMPLOYMENT DOWN; LAGGING TAXABLE VALUES REMAIN FLAT

Much of Ellis County remains rural in nature despite rapid, pre-recessionary 
economic expansion from affordable housing development within commuting 
proximity to the Dallas-Fort Worth metro area along major highway systems that 
include Interstate Highway 35. Some economic strengthening since the end of the 
recession is evident with a year-over-year decline in unemployment. At 6.4% in 
October 2012, unemployment levels were down from 7.7% in October 2011, remaining
slightly above the state (6.2%) and below the nation's rate of 7.5%.  

Although residential development has driven recent growth trends, the countyalso
maintains a historically stable industrial base of cement and steel 
manufacturers as well as some large distribution centers and utility plants that
represent most of the county's largest taxpayers. The top ten taxpayers 
contribute a moderately high 15% of TAV.    

Recessionary pressures on the housing market that led to significantly reduced 
development activity and lower home values are reflected in a trend of generally
flat TAV over the past four fiscal years. Solid tax base gains from fiscal years
2003 -2009 that averaged just over 10% annually halted in fiscal 2010. 

Near-term projections anticipate this recently flat trend to continue with a 1% 
TAV gain in fiscal 2014, which Fitch believes is reasonable given very low 
levels of new development reported. Over the longer-term, management favorably 
indicates there has been developer activity on establishing infrastructure 
necessary to support a sizeable subdivision. This subdivision is expected to 
include 3,000 single-family homes and 600 multi-family residences at build-out; 
although Fitch recognizes that the pace of development and its subsequent impact
on TAV remains uncertain given its very preliminary stage.

OVERALL DEBT BURDEN HIGH /MANAGEABLE CARRYING COSTS AND CAPITAL NEEDS

Overall debt ratios are high, reflective of the area's previous fast-paced 
expansion. Overall debt approximates $5,800 on a per capita basis and 6.8% of 
market value on a currently accreted basis, due in large part to local school 
district debt. However, the county's capital needs have remained manageable 
despite the rapid population growth due to typically annual pay-go capital 
spending and given the more limited scope of statutory responsibilities for a 
Texas county. The county has been a relatively infrequent debt issuer. Its debt 
profile is primarily comprised of fixed-rate debt with modest use of capital 
appreciation bonds. Principal amortization is slightly above-average at about 
53% of principal maturing within 10 years. The county has no remaining bond 
authority or other near-term debt plans. 

OTHER LONG-TERM LIABILITIES MODERATE

The county's pension plan, as well as disability and death benefits, are through
the Texas County and District Retirement System (TCDRS), an agent 
multiple-employer plan. The county has made 100% of its annual pension cost 
(APC) for fiscal years 2009 - 2011, which equaled $3.6 million in fiscal 2011. 
At 75%, the county's funded position was satisfactory after adjusting for a more
conservative 7% investment rate of return. 

The county also provides other post-employment benefits (OPEB) to its retirees, 
which consists of a health insurance benefit subsidy in a single-employer plan. 
The county funds OPEB annually on a pay-go basis. Yearly contributions have 
increased over the past three fiscal years, but are no more than about 31% of 
annual OPEB cost. Management may consider funding an OPEB trust over the 
near-term, although the unfunded actuarial accrued liability (UAAL) is a 
relatively moderate $6.2 million at the most recent December 31, 2010 actuarial 
valuation date or less than 1% of fiscal 2013 market value. Carrying costs for 
the county (debt service, pension, OPEB costs) totaled a manageable 19.3% of 
governmental fund spending in fiscal 2011.
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