Fitch Rates Brazoria County (TX) GO Rfdg & Unlimited Tax Road Bonds 'AA'; Upgrades Outstanding

2008-05-22 23:27:42 -

- Fitch Ratings assigns an 'AA' rating to Brazoria County's:

--$8 million unlimited tax road bonds, series 2008;

--$10 million general obligation (GO) refunding bonds, series 2008.

In addition, Fitch upgrades to 'AA' from 'AA-' its rating on the county's outstanding:

--$5 million of GO bonds (post refunding);

--$21.6 million in certificates of obligation;

--$13.6 million in unlimited tax road bonds.

The Rating Outlook is Stable.

Scheduled to sell via negotiation on June 10, 2008, the road bonds constitute a general obligation and are payable from an unlimited annual ad valorem tax levied upon all taxable property within the county. The GO refunding bonds are also secured and payable from ad valorem taxes, but are limited to a maximum levy of $0.80 per $100 TAV. Road bond proceeds will be used for constructing, designing, improving, extending, expanding, upgrading and/or developing roads throughout the county, and the GOs will be used to refund certain outstanding obligations for debt service savings.

The upgrade to 'AA' from 'AA-' reflects Brazoria County's tax base diversification resulting from recent economic expansion, as well as its prudent fiscal management that has enabled the county to increase its unreserved general fund balance to a very healthy level while managing a rapid population growth rate. The rating also reflects the county's low direct debt burden, solid tax base growth and, although declining, continued concentration and reliance on the chemical manufacturing sector. Ongoing and future development and resulting tax base growth will likely continue to reduce tax base concentration over time. Also, an above average amortization rate, provides the county flexibility to debt finance future capital needs.

Tax base growth accelerated in fiscal years 2006 and 2007 primarily as a result of residential development. While averaging 5.7% annually between fiscal years 2000 through 2005, TAV rose more than 11% annually in fiscal years 2006 and 2007, and resumed a slower pace in fiscal 2008 growing by 4.7% to a solid $18.9 billion. County officials reported that building permit values more than tripled in fiscal 2005 and that at least 60% of TAV growth is attributable to new construction of single family homes reflecting a significant shift in tax base concentration. In fiscal 2008, 44% of the tax base is residential and 43% commercial and industrial. This is compared to 35% residential and nearly 57% commercial and industrial in fiscal 2002. Real property comprises over three-quarters of the tax base, with personal property and minerals making up the remainder. The county property tax is the overwhelmingly predominant revenue source for the general fund.

The county's general fund reserves have benefited from the ongoing economic expansion. Despite modest tax rate cuts, the county has had positive financial results in each of the last three fiscal years, significantly increasing its unreserved general fund balance to a very solid $23.8 million, or 33% of spending at the close of fiscal 2007; this total is up from $10.1 million, or 16.5% in fiscal 2004. Fitch expects that the county will maintain its favorable financial position given the county's demonstrated prudent fiscal management and budgetary controls. The fiscal 2008 adopted budget is balanced and county officials anticipate ending the fiscal year with a modest surplus.

The current new money offering is the second installment of a $50 million voter referendum for GO road bonds that was passed by voters in November 2004. County officials currently plan to issue the remaining $28 million over the next three to four years, depending on the timing of certain state funded road projects. The direct debt burden on county residents is minimal at less than one percent of TAV. Amortization of property tax supported debt is above average with about 62% of principal retired in 10 years. The county's low direct debt burden, above-average amortization, and increasing tax base growth give the county flexibility to debt finance future capital projects. However, the overall debt burden, representing indebtedness of the cities, counties, and special districts located within the county, is high.

Brazoria County is located immediately south of Houston and is bordered by the Gulf of Mexico and Fort Bend, Galveston, and Matagorda Counties. The county is home to an estimated 294,000 residents. The largest cities within the county are Pearland (whose population has increased over 80% since the 2000 census to more than 68,000) and Lake Jackson, with an estimated 27,000 residents. The county economy consists primarily of chemical manufacturing, petroleum processing, manufacturing, fishing and tourism. In addition, the Brazos River Harbor Navigation District and the Port of Freeport, currently ranked the 12th busiest port in the nation based on tonnage, are located within the county. County per capita money income compares favorably to the state level but is slightly lower than the national level. The latest county unemployment rate of 4.4% for March 2008 is slightly higher than the state's unemployment rate, but better than the national rate for the same period.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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, Austin
Gabriela Quiroga, 512-215-3731
Rebecca Moses, 512-215-3739
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