Fitch Rates Garland, Texas' 2009 COs and Tax Notes 'AA+'; Outlook Stable
Source: Business Wire
Scheduled to sell May 4 via negotiation, the COs and tax notes are payable from an ad valorem tax levied against all taxable property in the city, limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally payable from a limited pledge (not to exceed $1,000) of the net revenues of the city's water and sewer system. Proceeds will be used to fund various improvements throughout the city and to pay costs of issuance.
The 'AA+' rating reflects Garland's conservative and stable fiscal management, ongoing strong financial performance, moderate debt burden, and overall sound local economy. Over the near term, management will be challenged to maintain comparable financial results in light of the city's maturing economy and economic softening as evidenced by a slowed housing market and year-to-date sales tax revenue declines. However, Fitch believes management has and will respond proactively, as the city utilizes extensive planning and monitoring in its operations and has evidenced its commitment to maintaining structural balance in its finances. The city's ability to manage expenditures and maintain solid general fund reserves comparable to the current rating category will be integral to maintaining credit quality.
Garland benefits from its location within the Dallas-Fort Worth metropolitan area, surrounded by major transportation corridors. Population growth has been minimal since 2000 as the city is near full build-out with a flat-to-stable population base, estimated at 226,000 residents in 2008. Local wealth levels approximate both state and national averages. Garland's industrial market is the second largest in the Dallas-Fort Worth metro area; manufacturing and distribution remain the primary economic engines for the city. Having trended downward since 2003, more recent city unemployment rates, like much of the nation reflect a softening in the local economy at 5.3% in 2008 and 7.5% in February 2009, which now exceed the metro and state averages. As the city approaches build-out, which is expected by 2012, TAV growth has slowed to a five-year annual average of 4%, down from more consistently higher annual growth rates posted before 2003. However, commercial/retail development along the George Bush Tollway to the north, which includes the Firewheel Town Center, and along IH-30 in the southern portion of the city, which includes the Harbor Point retail center, has assisted ongoing TAV growth. Over the near term, city officials report they are reviewing redevelopment efforts (primarily focused on commercial/retail/office space) that could generate further tax base growth.
The city has historically maintained solid general fund balances; audited fiscal 2008 results were better than originally anticipated and comparable to prior years' levels with an unreserved general fund balance at $17 million or roughly 13% of spending. The city adheres to an informal general fund balance target of 30 days of spending, and typically audited results outperform the budget due to conservative fiscal practices and effective cost controls. Proactive fiscal management is evident in the city's monitoring, planning, and forecasting practices that has already analyzed how an extended economic downturn may affect city finances over the near term. Accordingly, city management initiated additional salary savings and closed a library in fiscal 2009. Despite the current impact of general fund revenue declines, the city anticipates balancing these declines with salary savings and reduced fuel expenditures. Additional cost-saving measures are being examined in order to address projected declines in revenue forecasted over the next three fiscal years and avoid structural imbalance. The city is additionally well positioned to address shortfalls in its current funding levels with reserves that total approximately $22 million in various funds that exceed the city's 30-day target. It is currently anticipated that the city will close fiscal 2009 with level results while remaining above the city's informal reserve target.
Garland's direct debt levels are moderate and well within the city's policy of limiting tax-supported debt to 5.0% of TAV. Overall debt ratios are higher, primarily due to overlapping school district debt. Self-supporting debt of the city, primarily from the electric, water, and wastewater utilities, represents about 30% of total general obligation debt, thereby substantially reducing the impact on the city's debt service tax rate. A credit positive is the city's amortization rate, which is above average at about 68% of outstanding tax supported debt retired in 10 years. The city annually adopts a comprehensive five-year capital improvement plan (CIP). Despite additional scaling back of projects, the 2009-2013 CIP remains substantial at $477 million, and includes both tax- and revenue-supported projects. Approximately 15% of the projects are expected to be funded with tax-supported debt.
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Contact:
Fitch Ratings, Austin
Rebecca Moses, 512-215-3739
Gabriela Gutierrez, 512-215-3731
or
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Email:
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