Fitch Ratings assigns an 'AA-' rating to the following city of Boerne, Texas (the city) general obligation bonds (GOs):
--$6.25 million GO refunding bonds, series 2011.
The bonds are expected to price via negotiated sale the week of Nov. 14, pending market conditions. Proceeds will be used to refund a portion of the district's outstanding obligations.
In addition, Fitch affirms the following ratings:
--$21.16 million outstanding GOs at 'AA-'.
The Rating Outlook is Stable.
The GO bonds are a general obligation of the city, payable from the collection of property taxes levied against all taxable property within the city, subject to a constitutional limit of $2.50 per $100 assessed valuation.
KEY RATING DRIVERS
Proximity to San Antonio: The city's location just 30 miles west of San Antonio provides ready access to the nation's seventh largest city and employment base. Boerne attracts significant tourism given its location between San Antonio and the Texas Hill Country along Interstate Highway 10 (IH 10) and serves as a commercial hub for Kendall County.
Economically Sensitive Revenues: The city has above average exposure to economically sensitive sales tax revenues. Although dipping modestly in fiscal year 2009, sales tax revenues rebounded 2% in fiscal 2010, with an additional 7.5% gain in fiscal 2011. The overall 10 year sales tax trend reflects steady growth and economic expansion.
Sound Financial Management: The tenured management team budgets conservatively and reports quarterly to city council on progress in relation to the annual budget and five year planning goals. Boerne's strong financial performance is reflected in sizeable fund balances, the maintenance of which is a key credit factor to help the city manage potential fluctuations in economically sensitive sales tax revenues.
Expanding Tax Base: Taxable assessed value (TAV) almost doubled in the past six years to $1.1 billion, but the past two years have seen a notable slowdown. Boerne's top 10 taxpayers comprise a modest 6 % of fiscal 2011 TAV, improved from prior years. The city's strategic location, ample capacity and investment in utility and transportation infrastructure support the addition of new residential and commercial development.
Strong Socioeconomic Profile: Boerne's per capita income and wealth exceed the state and national averages. Solid county employment growth is reflected in an unemployment rate lower than the state and nation.
Moderately High Debt: The city's moderately high overall debt burden reflects the debt of overlapping municipalities and school districts, but is somewhat mitigated by above average wealth levels. Debt amortization is somewhat slower than average.
The city of Boerne is located in central Texas approximately 30 miles west of San Antonio on IH 10 with an estimated population of approximately 11,000. Wealth levels are above average. While still a small city, Boerne has experienced rapid population growth since 2000 along with accompanying retail/commercial expansion, benefiting from its strategic location between San Antonio and the Hill Country region of the state. The local economy includes tourism, agribusiness, and manufacturing. Additionally, the city serves as the principal commercial/service center for the predominately rural Kendall County.
The city's TAV grew at a strong average annual pace of 11% since 2006, although the pace slowed in fiscal 2011 and 2012. The tax base demonstrates a fairly diverse economic base, with the residential sector comprising 60% of TAV in fiscal 2011, followed by commercial and industrial at 30%. Taxpayer concentration is minimal at 6% of TAV and that number has declined from prior years. Fitch notes that significant city, county and Texas Department of Transportation (TXDOT) public infrastructure investments position Boerne for continued growth. Management anticipates TAV to increase between 1% and 3% over the next several years, and Fitch believes this projection is reasonable.
Strong historic financial performance is demonstrated by general fund reserves ranging from approximately 40% to 65% of spending over the past five years, with a fiscal 2010 unreserved general fund balance of $5.4 million or 54% of spending. The city budgets conservatively and maintains a minimum operating fund balances equal to 90 days of spending. Additionally, the city maintained capital reserves, equal to $2.6 million at fiscal year end 2010, available for council-approved capital expenditures.
Boerne has a higher than average exposure to economically sensitive sales tax revenues, with receipts comprising 43% of fiscal 2010 operating revenues. However, the adverse impact of the most recent recession has been muted by the city's strong population growth and the continued expansion of its commercial sector. Sales tax revenues grew by a compound annual rate of 7.8% over the past 10 years despite a 3% dip in fiscal 2009; a solid 7.5% gain was experienced in fiscal 2011. Despite the increase, management anticipates a modest general fund deficit for fiscal 2011 resulting from increased general fund capital outlays. The city council approved a fiscal 2012 budget with a small operating surplus, which includes a modest increase in property taxes and conservatively forecast sales tax receipts. Fiscal 2012 expenditures are generally flat compared to fiscal 2011, with some increased spending planned to support improved facility and street maintenance and provision of fire protection services.
The city's moderately high overall debt of $5,688 per capita or 5.3% of market value reflects $30.7 million in overlapping debt of the Boerne school district. Principal amortization is somewhat below average with under 44% of principal scheduled for repayment within 10 years. This issue will refund portions of the city's series 2002 general obligation bonds and series 2007 tax notes. Management expects to fund immediate capital needs with available bond proceeds from a prior issuance, general fund reserves and by leveraging third party funding sources. New debt issuances in support of additional transportation infrastructure and a city hall project are dependent on the timing of future growth.
The city participates in the Texas Municipal Retirement System (TMRS), with a fiscal year 2010 state-wide funded position of 82.9%, based on the TMRS investment assumption rate of 7%. While the city offers a defined benefit retiree health plan, there are currently no plan participants. The city's fixed costs including debt service comprise a moderately high 33% of fiscal 2010 general fund expenditures, which is somewhat mitigated by above average wealth levels.
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', dated Aug. 15, 2011;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Rebecca Meyer, +1-512-215-3733
111 Congress Avenue Suite 2010
Austin, Texas 78701
Blake Roberts, +1-512-215-3741
Doug Scott, +1-512-215-3725
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