In the course of routine surveillance, Fitch Ratings has downgraded Milam County, Texas' (the county) approximately $7.7 million in outstanding certificates of obligation (COs), series 2004 to 'BBB+' from 'A-'. The Rating Outlook is Stable.
The downgrade to 'BBB+' reflects the county's multi-year negative general fund balance position, weak financial management practices, and deterioration of the already limited local economy and employment base. The rating also incorporates previously noted high taxpayer concentration that has further increased in light of recent power plant expansion. Overall debt levels remain moderate; there are no additional borrowing plans for the foreseeable future. Despite previously stated county expectations of gradually restoring the general fund balance to more appropriate levels, reserves have been depleted reportedly to meet unanticipated expenses. Management's ability to rebuild and maintain adequate reserves remains a key rating driver.
The county is located in central Texas, northeast of the Austin metropolitan area. Rural in nature, the county's population has remained fairly stable since 2000 at about 25,000. Although within one hour from larger employment centers in Austin, Round Rock, Temple, and Bryan-College Station, the county's own economy is limited. The Alcoa (Fitch long-term Issuer Default Rating [IDR] of 'BBB-' with a Negative Outlook as of February 2009) aluminum smelting plant, which had operated in the county since 1954, was by far its largest employer with roughly 1,200 employees. Resulting layoffs that culminated in early 2009 from the company's decision to close plant operations has driven county unemployment rates to a high 10.7% as of July 2009, which now exceeds both state and national levels.
With an average annual growth of 5% over the past six fiscal years, the county's tax base reached $1.4 billion in fiscal 2009, reflecting larger, annual increases in more recent years with expansion to the existing Sandow power plant owned by Luminant, a unit of Energy Future Holdings Corporation (Fitch IDR 'B' with a Negative Outlook as of March 2009) (formerly TXU Corporation). Taxpayer concentration remains high and has increased. In fiscal 2009, the top 10 taxpayers accounted for almost 44% of total taxable values; Luminent and associated businesses contributed roughly 30%, while the value of the Alcoa plant equaled around 7% of the county's tax base.
Consecutive years in a negative fund balance position, reportedly due in large part to unanticipated capital and maintenance jail-related expenditures, resulted in a negative $15,000 general fund balance in fiscal 2007, equal to less than 1% of spending. While still negative, these results reflected an improvement from larger negative fund balances in prior years through the assistance of a moderate operating and maintenance tax rate increase, demonstrating the county's ongoing dependence on property taxes for operating support. It is expected that fiscal 2008 financial reporting will return to cash basis accounting, which makes comparison to prior years' modified accrual results difficult. However, management estimates that on a cash basis, despite substantial declines in year-to-date sales tax revenues, the county will have a reserve of roughly $1.4 million by the close of fiscal 2009.
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Contacts:
Fitch Ratings, Austin
Rebecca C. Moses, 512-215-3739
Andy
Kaaz, 512-215-3730
or
Media Relations:
Cindy Stoller,
212-908-0526, New York
Email: cindy.stoller@fitchratings.com
