AUSTIN, Texas--(Business Wire)--
Fitch Ratings assigns its 'AA+' rating to Harris County, TX's offerings
comprised of up to $100 million unlimited tax (ULT) road refunding bonds, series
2009A, up to $100 million permanent improvement refunding bonds, series 2009B,
and $29.3 million permanent improvement limited tax (LT) and revenue refunding
bonds, series 2009C, which are scheduled to sell during the week of Nov. 16,
2009 via negotiation. In addition, Fitch affirms its ratings on the county's
outstanding tax-supported debt comprised of:
-- $1.1 billion limited tax bonds at 'AA+';
-- $746.9 million unlimited tax bonds at 'AA+';
-- $665.6 million toll road unlimited tax and subordinate lien revenue bonds at
'AA+'.
Fitch also affirms its ratings on the following debt issued by the Harris County
Flood Control District, TX:
-- $108.9 million general obligation bonds at 'AA+';
-- $421.2 million contract tax revenue bonds at 'AA+'.
The 2009A bonds are payable from an unlimited property tax levied on all taxable
property within the county. The 2009B&C bonds are payable from a property tax
levy, limited to $.80 per $100 taxable assessed valuation (TAV) for both
operations and debt service, on all taxable property within the county. In
addition, the 2009C bonds are payable from a subordinate lien on the county's
hotel occupancy tax (HOT) revenues (totaling 1.85%). To date, the debt service
on all bonds with the same double-barreled pledge as the 2009C bonds has been
supported by HOT receipts only. The county has no outstanding bonds payable from
a senior lien on its HOT revenues. The Rating Outlook is Stable for all county
and flood control district bonds.
The 'AA+' ratings reflect Harris County's sound financial position, conservative
fiscal management, and substantial taxable resources. The county's financial
position remains solid but is facing growing pressure to provide adequate
staffing for its large adult and juvenile detention systems. Plus, continued
rapid population growth in unincorporated areas of the county poses additional
challenges to provide infrastructure and service needs. Recent sluggish TAV
growth will further limit financial flexibility; however, the recently
reinstated public improvement contingency fund will serve as a valuable buffer
in the interim. The direct debt profile remains favorable along with the
county's policy of maintaining an entire year's worth of debt service in
reserves. Although the economy has diversified into biomedical research,
aerospace, and international trade via the Port of Houston, energy and
petrochemical manufacturing remain major determinants of employment and tax base
growth. The abrupt end of the energy boom in 2008 continues to contract the
local economy, although at a slower pace; however, the housing market remains
relatively healthy as evidenced by steady home prices, which Fitch believes will
aid the economy's return to growth.
Encompassing the City of Houston, Harris County is the largest county in Texas
and the third largest in the nation. With a population totaling 3.9 million, the
county experienced solid continued growth since the 2000 census with the
majority occurring in the unincorporated parts of the county. Falling oil prices
have taken their toll on the job market of the Houston metropolitan statistical
area (MSA). The county's unemployment rate rose notably to 8.5% in September
2009 from 5.1% in the same period in 2008, slightly above the state average but
well below the national rate.
Financial performance continues to be solid but operating pressures are building
due to public safety expenditures that have grown by double digit percentages
annually since fiscal 2007. As a result, the county's financial reserves fell
below its 15% fund balance policy level in fiscal 2007 and 2009. In fiscal 2009,
the general operating fund (excluding debt service for the county's limited tax
bonds) posted essentially balanced results; however, growing encumbrances
reduced the unreserved fund balance to $166.7 million, equal to 12.1% of general
operating expenditures. Due to increased attention to expenditure control,
management projects fiscal 2010 to post nearly balanced operations despite
sluggish property tax revenue growth. A reallocation of mobility-related
expenditures to a new mobility fund is expected to further increase the
unreserved fund balance to $180 million.
In fiscal 2008, the county reinstated the public improvement contingency (PIC)
fund, which Fitch views favorably; the fund totaled $29 million in fiscal 2009,
funded with a dedicated levy of about 6/10ths of $0.01 per $100 TAV. For fiscal
2010, the PIC fund is projected to grow modestly to $31.5 million.
Property taxes represent about two-thirds of general fund revenues. Given the
current tax rate of $0.39 per $100 of TAV, the county has substantial taxing
margin below the $0.80 limit for operations and debt service. Although slowing
notably during the recession, the county's TAV growth remains positive due to
relatively stable home prices which were not subject to high rates of
appreciation prior to the recession. As in many parts of the country,
residential building permit activity is down, with values posting a 35% decline
in 2008.
Excluding $666 million in self-supported toll road unlimited tax bonds, the
county's direct debt position remains favorable at $652 per capita and under 1%
of TAV, including $222.9 million in outstanding tax supported commercial paper
debt. The county's limited debt service tax rate is also funding large flood
control district projects via contract payments. The principal payout rate
remains slow at about 39% in 10 years. Due to 350 overlapping entities, overall
debt ratios are high at $5,399 per capita and 7.5% of TAV. However, overall debt
ratios do not account for substantial state support for local school district
debt. The county's remaining bond authorization is large at $553.6 million. The
county plans to issue $100 million of such authorization in the next 12 months.
Credit concern over a substantial increase in debt levels is offset by the
county's very large and expanding tax base that could service such debt with a
modest tax rate increase.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Jose Acosta, +1-512-215-3726 (Austin)
Rebecca Moses, +1-512-215-3739 (Austin)
Copyright Business Wire 2009
