2009-09-02 00:12:03 -

In the course of surveillance, Fitch upgrades the rating on Ovilla, Texas' (the city) approximately $7 million in outstanding combination tax and waterworks and sewer system surplus revenue certificates of obligation (COs), series 2002 to 'BBB+' from 'BBB'. The Rating Outlook is Stable.

The certificates are direct obligations of the city and are secured by a continuing direct ad valorem tax

levied against all taxable property in the city within the limitations prescribed by law. The certificates are secured further by a pledge of surplus net revenues of the city's waterworks and sewer system.

The upgrade is based on the city's sound financial management, which has resulted in a string of operating surpluses that have strengthened the city's financial profile. The city has maintained positive general fund operating results since fiscal 2004, a substantial improvement from the uneven financial performance evident in the fiscal years preceding Fitch's last rating. The rating also reflects the city's moderate debt burden and limited capital needs, above-average wealth levels, and very limited economy, although this risk is partially offset by the city's proximity to the Dallas-Fort Worth metroplex.

The city's financial record has improved in recent years as evidenced by healthy general fund reserves. Audited fiscal 2008 results show an unreserved general fund balance of $729,098 or 36% of expenditures and transfers out, compared to $225,503 or 12.5% of total spending in fiscal 2004. For fiscal 2009 the city anticipates to break even despite steep declines in sales tax collections, which comprise approximately 7% of general fund revenues and are down 17% year-to-date from fiscal 2008.
The city has conservatively budgeted for a 14% decline in sales tax revenues for fiscal 2010, with the reduction in revenue offset by a spending freeze across all departments. The 2010 budget assumes no property tax rate increase, though the city maintains a good degree of flexibility under the $1.50 per $100 tax cap imposed by the state constitution. In order to help stimulate the city's economic and commercial development the city has called an election to establish a municipal development district to collect an additional 1/4 percent sales tax which would generate approximately $30,000 in additional revenue for the city.

Ovilla is located approximately 18 miles south of downtown Dallas in Ellis and Dallas counties. Historically rural in nature, the city has witnessed growth over the past decade, developing into an affluent bedroom community for the rapidly expanding Dallas-Fort Worth metroplex.
The city's population has grown at an average annual rate of 2% per year since 2000 to 3,961 residents in 2008. While taxable assessed value (TAV) growth has averaged about 4.1% since fiscal 2006, the city expects a modest 1.3% decline in TAV for fiscal 2010 due to a decline in residential values. The city is predominantly residential, with a small concentration of retail operations along the major thoroughfare through town. Employment opportunities within the metro area centered on the trade, transportation, and utilities sector and professional and business services. The latest unemployment rate for the county and the Dallas metropolitan statistical area (MSA) are slightly higher than the state, but considerably lower than the national average.

The city's direct debt burden is moderate at $1,674 per capita; however, the overall debt burden, which reflects the overlapping debt of various school districts and the counties, is high at $6,104 per capita after adjusting for state support of overlapping school district debt. The city has limited capital needs and no plans to issue additional debt in the near future. Principal repayment is slow with 42% of debt retired in 10 years.

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Fitch Ratings, New YorkJaissy A. Lorenzo, +1-212-908-9167Michael
Rinaldi, +1-212-908-0833Kevin Duignan, +1-212-908-0630 (Media
Relations) kevin.duignan@fitchratings.com : mailto:kevin.duignan@fitchratings.com Sandro

Scenga, +1-212-908-0278 (Media Relations) sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com