Fitch Ratings assigns an 'A+' rating to Edinburg, TX's
$15.6 million general obligation refunding bonds (GOs), series 2006
and $7.2 million certificates of obligation (COs), series 2006, both
of which are scheduled to sell via negotiation to a syndicate led by
A.G. Edwards & Sons, Inc. on Feb. 7. Additionally, Fitch has affirmed
the 'A+' rating on the city's outstanding debt comprising $6.2 million
GOs and $28.3 million COs and $300,000 tax notes. The Rating Outlook
is Stable.
The GOs and COs are direct obligations of the city payable from ad valorem taxes levied against all taxable property within the city, limited to a maximum tax rate of $2.50 per $100 taxable assessed valuation (TAV). Additionally, the COs will be secured by a limited pledge (not to exceed $1,000) of the net revenues from the operation of the city's waterworks and sewer system. Proceeds of the COs will be used for site acquisition and construction of a new city hall. GO proceeds will be used to refund a portion of the city's outstanding debt for interest cost savings and pay costs of issuance.
The 'A+' rating reflects the maintenance of sound financial reserves, continued growth in the tax base, and the low direct debt burden on city residents. Also considered in the rating are the operating pressures resulting from rapid population growth and the below-average employment and wealth levels in the city and region. General fund operations have consistently produced operating surpluses, maintaining and adding to a fund balance that by policy must equal 25% of expenditures.
The city's large reserves help offset any credit risk from the recent bankruptcy of its largest taxpayers, both of which are holdings of Calpine Corp. (CPN) (first-lien secured notes downgraded to 'B' from 'BB-' by Fitch on Nov. 4, 2005). Totaling a manageable 9% of the city's total TAV, in a the worst-case scenario in which both plants' TAVs are totally lost, the tax rate impact on the city's remaining taxable values would be modest at under 6? per $100 TAV. However, the bankruptcy judge has approved the payment of 2006 property taxes due Jan. 31. Furthermore, city officials anticipate overall TAV growth in fiscal 2007 will make up most of the taxable values in question and also cite the availability of additional support from the city's cash-rich solid waste fund to offset any needed property tax rate increases.
Edinburg, with an estimated population of 57,558, is located in Hidalgo County, within the fourth fastest-growing metropolitan statistical area in the nation. Although the border with Mexico is 20 miles to the south, the city serves as a distribution center, benefiting from the trade generated by cross-border manufacturing activity, as well as the agricultural production in the region. After slowing in fiscal 2003, both sales taxes and property values have returned to previously strong rates of growth. Various state-funded transportation projects are ongoing and, upon completion, are expected to further stimulate economic diversification and growth. The city and surrounding areas continue to experience population growth, which has resulted in taxing effort being shifted to the operating levy to provide adequate resources for general fund services.
Its distance from the border insulates the city from sales tax fluctuations that could be attributable to potential peso devaluations or reliance on shoppers from Mexico. The economy has experienced strong residential tax base growth, as well as diversification and improvements in its commercial sector. Energy production, health care, higher education, and tourism are components of the local economy that have developed in recent years to complement the distribution, trade, and agricultural sectors that have been historically present.
As a result, the city's unemployment rate has steadily trended downward, totaling a still high 7.1% in 2004 but falling further to rates on par with the state for most of 2005. However, resident wealth levels remain substantially lower than that of the remainder of the state and nation, although the below-average cost of living somewhat offsets these conditions.
Growth in TAV has averaged an impressive 10% annually for the past five years in Edinburg, rebounding by a solid 12% in fiscal 2006 after tapering off somewhat to 6.6% in fiscal 2004. As such, city finances have benefited from increases in property tax revenue by maintaining the same total property tax rate for 11 consecutive years. There has been a shift in taxing effort toward general fund operating needs. However, operating surpluses are consistently achieved despite the increased service demands from a burgeoning population.
For fiscal 2004, a general fund operating surplus of $1.7 million was recorded which contributed to an undesignated, unreserved fund balance that totaled $8.6 million at year end. This amount represented 37% of general fund expenditures and transfers. Sales tax revenues also increased by 10% for the year. Unaudited figures for fiscal 2005 anticipate an approximate $1.3 million operating surplus, aided by rapid sales tax growth of almost 20%, which will raise the total ending general fund balance to about $10.8 million, or over 40%. The fiscal 2006 budget anticipates a manageable $3 million drawdown, but is based on conservative sales tax growth of 4%; year-to-date collections point to 7% growth.
The direct debt burden for Edinburg residents is low at $561 per capita and 1.6% of TAV. Overall debt burden is moderate at $1,276 per capita and 3.7% of TAV after adjusting for state support of local school district debt.
Amortization of direct debt is slightly above average at 59% in 10 years. Although the city's five-year capital plan is sizeable at $100 million, only about 15% of it will be financed with tax-supported debt, some of which has already been issued. The city's next debt issuance is scheduled for this spring in the form of water and sewer revenue bonds, totaling $10 million, for the construction of a new water treatment plant.
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.
The GOs and COs are direct obligations of the city payable from ad valorem taxes levied against all taxable property within the city, limited to a maximum tax rate of $2.50 per $100 taxable assessed valuation (TAV). Additionally, the COs will be secured by a limited pledge (not to exceed $1,000) of the net revenues from the operation of the city's waterworks and sewer system. Proceeds of the COs will be used for site acquisition and construction of a new city hall. GO proceeds will be used to refund a portion of the city's outstanding debt for interest cost savings and pay costs of issuance.
The 'A+' rating reflects the maintenance of sound financial reserves, continued growth in the tax base, and the low direct debt burden on city residents. Also considered in the rating are the operating pressures resulting from rapid population growth and the below-average employment and wealth levels in the city and region. General fund operations have consistently produced operating surpluses, maintaining and adding to a fund balance that by policy must equal 25% of expenditures.
The city's large reserves help offset any credit risk from the recent bankruptcy of its largest taxpayers, both of which are holdings of Calpine Corp. (CPN) (first-lien secured notes downgraded to 'B' from 'BB-' by Fitch on Nov. 4, 2005). Totaling a manageable 9% of the city's total TAV, in a the worst-case scenario in which both plants' TAVs are totally lost, the tax rate impact on the city's remaining taxable values would be modest at under 6? per $100 TAV. However, the bankruptcy judge has approved the payment of 2006 property taxes due Jan. 31. Furthermore, city officials anticipate overall TAV growth in fiscal 2007 will make up most of the taxable values in question and also cite the availability of additional support from the city's cash-rich solid waste fund to offset any needed property tax rate increases.
Edinburg, with an estimated population of 57,558, is located in Hidalgo County, within the fourth fastest-growing metropolitan statistical area in the nation. Although the border with Mexico is 20 miles to the south, the city serves as a distribution center, benefiting from the trade generated by cross-border manufacturing activity, as well as the agricultural production in the region. After slowing in fiscal 2003, both sales taxes and property values have returned to previously strong rates of growth. Various state-funded transportation projects are ongoing and, upon completion, are expected to further stimulate economic diversification and growth. The city and surrounding areas continue to experience population growth, which has resulted in taxing effort being shifted to the operating levy to provide adequate resources for general fund services.
Its distance from the border insulates the city from sales tax fluctuations that could be attributable to potential peso devaluations or reliance on shoppers from Mexico. The economy has experienced strong residential tax base growth, as well as diversification and improvements in its commercial sector. Energy production, health care, higher education, and tourism are components of the local economy that have developed in recent years to complement the distribution, trade, and agricultural sectors that have been historically present.
As a result, the city's unemployment rate has steadily trended downward, totaling a still high 7.1% in 2004 but falling further to rates on par with the state for most of 2005. However, resident wealth levels remain substantially lower than that of the remainder of the state and nation, although the below-average cost of living somewhat offsets these conditions.
Growth in TAV has averaged an impressive 10% annually for the past five years in Edinburg, rebounding by a solid 12% in fiscal 2006 after tapering off somewhat to 6.6% in fiscal 2004. As such, city finances have benefited from increases in property tax revenue by maintaining the same total property tax rate for 11 consecutive years. There has been a shift in taxing effort toward general fund operating needs. However, operating surpluses are consistently achieved despite the increased service demands from a burgeoning population.
For fiscal 2004, a general fund operating surplus of $1.7 million was recorded which contributed to an undesignated, unreserved fund balance that totaled $8.6 million at year end. This amount represented 37% of general fund expenditures and transfers. Sales tax revenues also increased by 10% for the year. Unaudited figures for fiscal 2005 anticipate an approximate $1.3 million operating surplus, aided by rapid sales tax growth of almost 20%, which will raise the total ending general fund balance to about $10.8 million, or over 40%. The fiscal 2006 budget anticipates a manageable $3 million drawdown, but is based on conservative sales tax growth of 4%; year-to-date collections point to 7% growth.
The direct debt burden for Edinburg residents is low at $561 per capita and 1.6% of TAV. Overall debt burden is moderate at $1,276 per capita and 3.7% of TAV after adjusting for state support of local school district debt.
Amortization of direct debt is slightly above average at 59% in 10 years. Although the city's five-year capital plan is sizeable at $100 million, only about 15% of it will be financed with tax-supported debt, some of which has already been issued. The city's next debt issuance is scheduled for this spring in the form of water and sewer revenue bonds, totaling $10 million, for the construction of a new water treatment plant.
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.