2008-11-21 23:00:06 -
Fitch Ratings has assigned 'AA+' ratings to the following bonds for San Antonio, Texas (the city):
--$76.1 million general improvement bonds, series 2008;
--$85.1 million combination tax and revenue certificates of obligation (COs), series 2008;
--$15.8 million tax notes, series 2008.
The bonds are scheduled to sell during the week of Dec.
2 via negotiated sale. The Rating Outlook is Stable.
In addition, Fitch affirms the following ratings on the city's outstanding debt:
--$736.9 million general improvement bonds at 'AA+';
--$294.4 million certificates of obligation at 'AA+';
--$17.9 million tax notes at 'AA+'.
The 2008 offerings are payable from ad valorem taxes levied against all taxable property located within the city, subject to a $2.50 per $100 assessed valuation limitation. The certificates are additionally payable from a limited pledge of municipal park system revenues.
The 'AA+' rating reflects the city's favorable overall economic activity and diversification, solid financial practices and improving recent results, and a well-managed direct debt position. Renewed growth in the city's sales tax receipts has enabled the city's financial position to stabilize after experiencing some pressure during the last national recession, although current economic conditions have reduced current sales tax receipts to more modest levels of growth. The city's administration has implemented enhanced financial reserves and developed an aggressive capital plan to meet sizeable deferred capital needs. Such plans may lead to above average debt levels but will allow the quality of the city's infrastructure to keep pace with the rising expectations associated with on going high value investments in the city.
The continued strong performance of sales tax and City Public Service (CPS) revenues, which increased by over 9% in fiscal years 2005 and 2006, led to substantial operating surpluses for the general fund during these two years of $20 million and $43 million, respectively. Fiscal 2007 marked a new administration's first full fiscal blueprint and was notable for its new and increased financial reserves, funded by additional CPS transfers (electric and gas utility rated 'AA+' by Fitch). Although fiscal 2007 posted a modest operating deficit, the unreserved fund balance remained solid at $143 million or 18.5% of spending, including an increased reserve for revenue loss of $48.1 million or 6.2% of spending. Unaudited fiscal 2008 results point to large $47.6 million addition to the total fund balance, including a planned increase of the city's reserve for revenue loss to $68.2 million or 8% of spending. The fiscal 2009 budget is balanced, based on modest 2.75% sales tax growth, level CPS transfers and adds $15.5 million to reserves, increasing the total cushion to 9% of spending. The city's goal is to increase its dedicated reserves to 10% of spending by fiscal 2010.
The city's finances also have benefited from solid growth in its taxable assessed valuation (TAV), increasing by a compound annual average of nearly 12% over the last six years. Fiscal 2009 TAV increased by more than 10% or $6.9 billion, most of which was due to revaluation, although new construction also contributed a sizeable $2.1 billion. The city's top ten taxpayers comprise a modest 5% of TAV. After growing rapidly in recent years, fiscal 2008 residential building permits are projected to post a large 44% decline although commercial permits continue to grow impressively.
The general improvement bond component of the current offerings represents the second installment of a $550 million authorization approved by voters in May 2007, the largest in the city's history. Intended to address the city's large deferred capital needs, the administration is proposing to seek voter authorization for similar-sized programs every five years. All future debt will be sized to maintain the city's current debt service tax rate assuming modest tax base growth.
The impact of the proposed debt plans on the city's direct debt profile should be manageable given its low current levels, rapid pay out rate, and expansive and growing tax base. However, the city's already high overall debt burden may become burdensome, even after adjusting for state support of local school district debt. The principal payout rate for property tax-backed debt is above average at almost 70% in ten years, and debt service payments represent an above average 15% of combined general and debt service fund expenditures in fiscal 2007.
San Antonio is the second largest city in the state and seventh largest in the U.S., according to census information, with an estimated population of 1.3 million for 2008. Prominent industries in the local economy are domestic and international trade, convention and tourism, military and government employment, medical and health care, financial services, and telecommunications.
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,
cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ... 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, Austin
Jose Acosta, 512-215-3726
Gabriela Quiroga, 512-215-3731
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: mailto:cindy.stoller@fitchratings.com
