Oct 30 - Fitch Ratings has assigned an 'A+' rating to the following San
Benito, Texas (the city) limited bonds:
--$6.09 million general obligation (GO) refunding bonds, series 2012;
--$2.9 million combination tax and limited pledge revenue certificates of
obligation (COs), series 2012.
The bonds are scheduled for negotiated sale on Nov. 5.
Proceeds of the GOs will be used to refund certain outstanding bonds for
interest cost savings. Proceeds from the COs will be used for street
In addition, Fitch affirms its 'A+' on outstanding limited tax bonds of the
The Rating Outlook is Stable.
The GO bonds and COs are secured by an ad valorem tax levied on all taxable
property within the city, limited to $2.50 per $100 taxable assessed valuation
(TAV). The COs are additionally secured from a limited subordinate lien pledge
of the net revenues of the city's waterworks and sewer system.
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: The key credit strength is the city's sound financial
performance despite some fluctuation in operating revenues and dependence on
economically sensitive revenue. The city's ability to continue its practice of
registering modest annual surpluses after transfers and maintaining adequate
operating reserves is fundamental to rating stability.
IMPROVING SALES TAX REVENUES: Sales tax revenues, a major source of operating
revenues, have increased in the last two fiscal years following a recessionary
MODEST, DIVERSIFIED TAX BASE: The city's assessed valuation continues to
increase modestly. Diversity in the area economy, together with a relatively
stable housing market and continuing development support projections for
continued stability in the tax base.
WEAK SOCIECONOMIC INDICATORS: The city's low income levels, high poverty rate,
and above-average unemployment rate are subpar but fairly typical of border
communities in the Rio Grande Valley.
MANAGEABLE DEBT; NO CIP: Overall debt levels are moderate while the direct debt
burden is low due to substantial support from net utility revenues. Fitch notes
as a credit weakness the lack of formal capital planning. Amortization of
tax-supported debt is above average which should accommodate additional debt as
needed at least for the near term.
SMALL RIO GRANDE VALLEY COMMUNITY
The city is located in Cameron County at the southern tip of Texas in the Lower
Rio Grande Valley, situated between the cities of Harlingen and Brownsville.
With an estimated 2012 population of 25,000, population has grown a modest 8%
over the past decade. The city's economy is based on agriculture, retail/service
industries, manufacturing, and tourism.
Wealth and income levels in the city are substantially below state and national
levels. Per capita money income is less than 50% of the state and national
averages, and the city's per capita market value is a low $28,000. Unemployment
remains comparatively elevated at 10.6% in Aug.ust 2012, with year-over-year
improvement from 11.4% due to a 3% decline in the labor force outpacing a
decline in employment. The city's unemployment rate consistently tracks just
above the state and national rates.
GROWTH IN ASSESSED VALUE CONTINUING
TAV grew at a 3.3% compound average growth rate from fiscal years 2007-2011 but
slowed to 1.2% growth in fiscal 2012 and 0.4% growth in fiscal 2013 to $587
million. Officials report residential development is picking up, evidenced by
several multi-unit developments planned or underway and continuing build-out of
an existing single-family subdivision.
Modest development coupled with a relatively stable housing market supports
Fitch's expectation for continued stability in TAV over the near- term. The top
ten 10 taxpayers comprise a moderate 11% of fiscal 2011 TAV, with AEP Texas
Central (a public utility company) the largest payer at 2.2%.
STABLE FINANCIAL PROFILE DESPITE SOME REVENUE WEAKNESS
Four of the last five fiscal years have yielded positive operating results after
transfers and maintenance of available fund balance at above 20% of spending.
Sales taxes, which comprise nearly one-third of operating revenues, declined by
a cumulative 10% from fiscal years 2008-2010 before rebounding 4.3% in fiscal
2011. Other revenues, namely municipal court fines and charges for traffic
crossing the Los Indios international bridge, also declined in fiscal 2011.
Property tax receipts during this period have remained stable.
City officials cut fiscal 2011 expenditures and transfers 5% by foregoing pay
increases to staff and reducing the level of capital outlays. Under-spending of
the budget offset the revenue weakness mentioned above, allowing the city to
record a modest $101,000 operating surplus after transfers and conclude fiscal
2011 with an unrestricted general fund balance of $2.2 million (the sum of
committed, assigned, and unassigned per GASB 54) or 22.6% of spending.
The fiscal 2012 budget shifted 6-cents (10%) of the tax rate to the general fund
from the debt service fund. With continuing cost control measures, officials
expect audited results will show a $245,000 increase to available fund balance.
The fiscal 2013 balanced budget increased spending 6.7% from the prior year,
adding new positions and providing raises to staff. The budget was funded with a
5.8% increase to the tax rate, which now totals $0.728 per $100 TAV.
The new money portion of this issuance will require approximately three cents of
the tax rate going forward, as the street improvements to be funded will not be
repaid with net utility fund revenues. Fitch notes that the preservation of
solid operating reserves is a key factor in the current rating but expects
stable financial performance to continue given management's track record of
AFFORDABLE DEBT BURDEN
The direct debt burden is low while overall debt is moderate with about 72% of
the city's outstanding debt repaid by net enterprise and special revenues. Debt
service supported by taxes consumed a manageable 12% of fiscal 2011 general fund
and debt service expenditures and amortization is rapid at 70% retired in 10
Water and sewer utility operations remain healthy and net system revenues
provided 1.6x coverage of fiscal 2011 tax-backed debt service. Consistent system
rate increases have occurred and are planned through fiscal 2014 in line with
recommendations from an external rate study; the rate increases are supporting
recent plant improvement costs and debt service.
The city is in the midst of completing capital improvements to its water and
sewer infrastructure as required by the state's environmental agency.
Improvements are focused in the historic downtown core area (Phase I) where
regulatory infractions were discovered. Broader assessment of system needs in
the relatively more modern areas of the city (Phases II-IV) has yet to be
undertaken, though management has indicated additional debt issuance will not
occur for the next three to four years.
Fitch views the lack of a multi-year capital improvement plan with concern,
particularly given the uncertainty around costs associated with potential system
improvements. Fitch will continue to monitor any new costs that would materially
change the debt and/or financial profile of the city.
PENSION LIABILITIES NOT A CREDIT PRESSURE
The city contributes to two pension systems: the Texas Municipal Retirement
System (TMRS) and a Firemen's Pension Fund. Fitch considers the city's funded
position adequate for TMRS but weak, though improved, for the Firemen's system
at only 59.5% funded as of Dec. 31, 2011, assuming a 7% rate of return. The city
has made 100% of the annual required contributions over the last three fiscal
years for both plans, which consumed an affordable 5.2% of general fund
expenditures. The combined unfunded actuarial accrued liability equals a modest
0.5% of 2013 MV. The city does not offer other post-employment benefits.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight, Zillow.com, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria