2008-11-13 20:28:03 -
Fitch Ratings assigns an 'AA+' rating to Bexar County, TX's (the county) $32.5 million pass-through revenue and limited tax bonds, series 2008, scheduled to price the week of Nov. 17, 2008 via negotiation.
Additionally, Fitch affirms the 'AA+' rating on the county's outstanding debt as follows:
--$22.4 million pass-through revenue and limited tax bonds;
--$62.5 million limited tax bonds;
--$40.5 million unlimited tax bonds;
--$125.3 million certificates of obligation (COs);
--$146.1 million flood control COs.
The Rating Outlook is Stable.
The bonds are payable from a property tax levy, limited to $0.80 per $100 taxable assessed valuation (TAV), on all taxable property within the county. Additionally, the bonds are payable from payments received from the Texas Department of Transportation (TxDoT) pursuant to a pass-through agreement for the construction of specific road improvements. Such payments will be received once the road projects are open to the public.
The 'AA+' rating reflects the county's large and expanding tax base, improved financial position, and the general overall health of the diversifying local economy. Prudent financial stewardship enabled the county to address a recent imbalance between general fund revenues and expenditures. Additional significant credit factors are the county's very low direct debt burden and the operating and capital pressures stemming from a fast growing population. Numerous major commercial developments are expected to help sustain the county's positive employment and tax base trends.
Bexar County, with an estimated 2008 population of 1.6 million, is home to San Antonio. The local economy is broad, consisting primarily of health care, government, trade, and tourism. The area's health care industry has an estimated annual economic impact of $10 billion. The county's proximity to Mexico is key to international business and trade. Approximately 50% of trade between the U.S. and Mexico passes through the county.
Income levels are generally about 10% lower than the U.S. average, but only slightly less than state averages. However, growth in area income over the past few years has exceeded state and national norms, aided by the metropolitan statistical area's (MSA) job growth which has equaled a strong 2.6% or more in calendar years 2005-2007. Although trending up in recent months due to current economic conditions, the county's unemployment rate, (totaling 5% in September 2008) is on par with the state average. Taxable assessed valuation (TAV) has surged recently, posting 15% increases in fiscal 2007 and fiscal 2008, before moderating slightly to a 9% increase in fiscal 2009.
The county has restored structural balance to its financial operations, evidenced by growing general fund operating surpluses in each of the last four audited fiscal years. Most recently, fiscal 2007 results posted a $5.2 million addition to reserves, increasing the undesignated fund balance to $53.2 million or 18.1% of expenditures and transfers out, well above its 10% fund balance policy. Fiscal 2008 general fund projections point to the maintenance of strong reserves, equal to 15.4% of spending, although the budget shifted part of the tax rate to the flood control special tax levy in order to finance drainage projects. About 70% of general fund revenue is derived from ad valorem taxes. Public safety expenses dominate the general fund budget, with 40% of appropriations for law enforcement and jail operations.
Notably, the fiscal 2008 budget included partial funding of the estimated annual required contribution for the county's unfunded liability incurred for post-employment benefits, indicative of proactive management. The fiscal 2009 budget projects a large $15 million drawdown, reducing projected reserves to the 10% fund balance level. However, the budget conservatively appropriates $20 million in contingencies, including $8.7 million in reserves; the bulk of the remaining $13.3 million in contingencies is intended for 3% pay hikes.
The current offering will fund road improvements as part of the state's pass-through toll program which reimburses local entities for providing contributions to specific local transportation projects. Although not pledged, sales tax revenues from the advanced transportation district will also support debt service. Once the projects are open to the public, TxDoT will commence pass-through payments which the county plans to use for early redemption of the bonds.
Including the county's recent venue tax bonds, the county's direct debt is very low at $333 per capita and 0.6% of TAV. Overall debt is relatively high at 6% of TAV, even after adjusting for state support of local school district debt. Due to rising property values, such state support has declined substantially, increasing the effective overall debt levels for the county, which includes 15 different school districts. Including the current offerings, the principal amortization of property tax-supported debt is average at 52% in 10 years but down from previous levels of 76%.
The county is planning to issue up to $680 million over a 10 year period in non-voter approved certificates of obligation for drainage improvements planned in conjunction with the City of San Antonio, the San Antonio River Authority (SARA), and other regional participants. Previously funded through contractual obligations to SARA, the county will now issue the debt directly, although SARA will continue to provide technical assistance and manage the main river project.
Additionally, the county plans to pursue $415 million in tourism-related projects that will be financed with bonds secured by visitors' taxes. Such taxes are now in place but were extended by voters in May 2008 for this purpose. The county issued the first installment of this authorization this summer in the amount of $109 million.
Given the 10 year and six year horizons of the drainage and tourism projects, respectively, Fitch believes that the county's growing tax base and average amortization of existing principal will help to alleviate some of the rising debt burden that residents may face.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site,
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