Fitch Ratings assigns an 'AA' rating to the city of Abilene, Texas' (the city) $8.14 million general obligation (GO) bonds, series 2009, and $10.7 million combination tax and revenue certificates of obligation, series 2009. In addition, Fitch assigns an 'AA' rating to the $38 million in outstanding GO bonds and $50 million in certificates of obligation. The bonds are scheduled to be sold via negotiation the week of August 10, 2009. The Rating Outlook is Stable.
The GO bonds are secured by a continuing direct ad valorem tax levied against all taxable property within the city, subject to a $2.50 per $100 assessed valuation limitation prescribed by law. In addition, the CO bonds are secured by a limited pledge (not to exceed $2,500) of surplus net revenues of the city's waterworks and sewer system. Proceeds will be used to finance the construction and improvement of the city's streets, together with traffic improvements, and various water and sewer improvements.
The 'AA' rating reflects the city's favorable financial position, limited capital requirements, low to moderate debt levels, and diverse tax base. A key factor in the rating assignment is the limited capital requirements of the city over the next five years. While Fitch notes the city continues to experience some growth pressures as the economic, medical, education, and cultural center of this West Central Texas area, the city's capital plan continues to be very manageable. Fitch also considered the city's moderate to high property tax levels and recent budget pressures as concerns.
Abilene is located 150 miles west of Fort Worth, along Interstate 20, in Taylor County. The estimated city population is 117,000, including 6,076 military and civilian personnel stationed at Dyess Air Force Base. As the primary training base for the B-1 bomber, Dyess is the home of the 7th Bomb Wing of the Air Combat Command. The city's primary employment sectors are government, education, healthcare, and retail. The city is home to Abilene Christian University, with enrollment of 4,000 and two public hospitals. The city's wealth levels are below the state and nation, and the June 2009 unemployment rate is 6.2%, which is below the state and nation.
The city's tax base has recorded steady annual growth over the past five fiscal years. Since fiscal 2003 taxable assessed valuation (TAV) has increased on average 6.8% annually. Residential values continue to be strong in Abilene driving some of the increase in TAV. In addition, the city has increased its hotel supply by 9%, with five new hotels and a new Life Sciences Accelerator Center. This new center, which is scheduled to open in December 2009, is for early-stage biotech companies. Tenants will license discoveries made the Texas Tech and other universities to develop products and treatments for human quality of life. Additionally, Abilene has Horse Hollow Wind Energy Center located just outside the city. It is the world's largest wind development with 421 turbines spread across roughly 60,000 acres outside Abilene, Texas. Abilene has attracted various wind energy companies to set up manufacturing operations within the city.
The city's financial profile is strong with strong general fund balance levels and limited capital requirements. General fund reserve levels are slightly below the city's policy of three months of expenditures; however, the city plans to restore these fund balance levels in the near term. The unreserved general fund balance at fiscal 2008 year-end was $15.4 million, or 23% of spending and transfers out. Sales tax receipts have flattened within the past year due to the economic slow-down in retail and construction activity but management expects them to grow slightly in fiscal 2009. Sales tax revenues comprised roughly 39% of total general fund revenues in fiscal 2008. Liquidity remains healthy; general fund cash and investments at fiscal 2008 year-end totaled nearly $15 million.
Projected fiscal 2009 results likely will be balanced, with an unreserved general fund balance level of $15.1 million. Management also projects sales tax receipts to register a gain of roughly 1.5%; however, year to date, the city is running slightly above this level. The fiscal 2010 budget includes a pay increase for city employees; however, police officers and fire fighters have agreed to delay negotiated pay raises for six months each. The city has elected to close its OPEB program over a three-year period, moving all retirees to a different health insurance plan, where they will be required to fund all premiums. Currently, the city is in the second year of this transition. In addition, the city has a current hiring freeze in place. These expense reductions are expected to result in a balanced budget for fiscal 2010.
Abilene has a low direct debt burden at 1.9% of TAV and $857 per capita and low to moderate overall debt at $1,256 per capita and 2.8% of TAV. Principal amortization is above average at more than 75% in 10 years. The city completed its last authorization in May 2006 to issue $29.8 million in bonds for street, drainage, parks, and other improvements. The city will have no remaining authorization after this issuance, and the city's five year capital plan is $12 million.
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Steve Murray,
512-215-3729 (Austin)
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