Fitch Ratings assigns its 'A+' rating to two series of Hidalgo County, Texas' bonds:
--$6.1 million certificates of obligation (COs), series 2009B;
--$6 million COs, taxable series 2009C (Build America Bonds-Direct Payment).
Both are scheduled to price the week of Sept. 28, 2009 via negotiation. Additionally, Fitch affirms its 'A+' rating on the county's outstanding parity debt totaling $169.5 million. The Rating Outlook is Stable.
The 'A+' reflects the county's improved financial position, positive debt profile, solid tax base growth, and strategic border location and access to the Gulf Coast transportation network that benefits its growing international trade activity. Other credit factors include the county's low but rapidly growing wealth levels and historically above-average unemployment levels. Amid steady tax base growth, the county has maintained level tax rates to help address the growing service demands of its rapidly growing population. After posting record low unemployment rates in 2007, recent increases in this indicator and a stalled housing market point to softened economic conditions. The county's future financial management should benefit from development of its first strategic plan which will incorporate multi-year financial forecasting. Additionally, a recent change to the county's fund balance policy should enhance its flexibility in meeting unexpected challenges. Finally, international trade activity has benefited the county's economy but also poses a source of uncertainty during the current economic downturn.
Hidalgo County, located in the southernmost region of Texas bordering Mexico, has a population of more than 775,000. McAllen (general obligation [GO] bonds rated 'AA' by Fitch), Mission, and Edinburg (GO bonds rated 'A+') are the largest cities in the county. The leading sectors of commerce are tourism, agribusiness, and trade with Mexico. In particular, the tourism and trade sectors have led to rapid population growth, rising approximately 48% from 1990-2000 and another estimated 36% through 2009.
Manufacturing plants are a significant factor on both sides of the U.S.-Mexico border, with a major presence of maquiladoras, or 'twin plant' manufacturers, in Reynosa, Mexico. Income levels remain significantly below those of the state and U.S., although the area's relatively low cost of living offsets some concern about wealth levels. Unemployment remains above average but declined to a record low level, totaling 6.6% in 2007; it subsequently increased notably to 11.4% by July 2009 due to the economic slowdown.
Annual growth in taxable assessed valuation (TAV) has averaged a strong 9.1% over the last five fiscal years. While home building permits have declined, commercial building activity remains stable as big box retailers continue to follow the recent surge in home building. Although oil and gas mineral values comprise only 8% of total TAV, five of the top 10 tax payers are oil and gas producers.
The direct debt burden is very low at $234 per capita and less than 1% of TAV. Overall debt is moderate at $1,364 per capita and 3.9% of TAV, adjusting for substantial state support for school district debt. The 10-year principal pay-out rate is favorable at 64%. The county's near-term debt plans include about $30 million-$35 million in early 2010 for drainage, road improvements, and courthouse renovations.
The county's financial reserves have grown steadily, posting general fund operating surpluses in four of the last six years. However, after adopting a balanced budget for 2008, the county posted a large $9.6 million drawdown due mostly to Hurricane Dolly related expenditures, resulting in a modest but still adequate unreserved fund balance of $11 million or 6.7% of spending. Upon the receipt of $9 million in federal reimbursements for hurricane related debris removal, which is expected by the end of 2009, the county's unreserved fund balance will total a solid $19 million or 11.5% of spending. The adopted 2010 budget was balanced after closing a significant $10 million budget gap. The county also enhanced its fund balance policy to require reserves equal to 10%-15% of spending.
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Contacts:
Fitch Ratings, Austin
Jose Acosta, 512-215-3726
Rebecca Moses,
512-218-3739
or
Media Relations:
Cindy Stoller,
212-908-0526, New York
Email: cindy.stoller@fitchratings.com
