Fitch Rates Highland Village, Texas 2008 GOs & COs 'AA-'
Source: Business Wire
In addition, Fitch has affirmed the following ratings for the city:
--$21.1 million general obligation (GO) bonds at 'AA-';
--$12.2 million COs at 'AA-'.
The Rating Outlook is Stable.
Scheduled to price on May 11, 2009, the COs are secured and payable from a property tax levied on all taxable property within the city and are further secured by a limited pledge, not to exceed $2,500, of the net revenues of the city's water and sewer system. Proceeds from the sale of the COs will be used for water and sewer system infrastructure improvements, construction and equipment for a municipal service center complex, soccer and trail facilities improvements, and to pay issuance costs.
The 'AA-' rating reflects a consistent trend of favorable financial performance, above-average overall debt load and limited borrowing needs, as well as a favorable demographic profile and its location within the broad and diverse economy of the Dallas-Fort Worth metro area. Highland Village is an upscale community that is nearing residential build-out. With the recent expansion of a major commercial thoroughfare along the city's southern boundary, commercial development has accelerated, helping to diversify the tax and revenue bases. Two new shopping centers opened in September and October 2007, providing additional sales tax and property tax revenue for the city. General fund reserve levels remain solid. Fitch expects that despite the anticipated slowdown in tax base growth and property tax receipts associated with full build-out, the city will maintain its favorable financial position via its broadening commercial base as well as the continuation of conservative fiscal practices.
With an estimated population of 15,850 for 2009, Highland Village is located in the southeastern portion of Denton County, approximately 15 miles southeast of Denton, 20 miles north of Dallas, and 34 miles northeast of Fort Worth. Since 2000, the city's population has increased over 20%. Area wealth levels are well above state averages while county unemployment rates remain below the region, state, and nation.
Approximately 87% of the city's tax base is residential, with only a modest amount of lots available for housing construction. Commercial activity has been spurred by the recent widening of Highway 407, a major thoroughfare along the southern boundary of the city. Two major developers have opened shopping centers in 2007, which Fitch expects to contribute to increased revenue base diversity, although increasing retail competition from neighboring communities is a concern. Taxable assessed valuation (TAV) continues to record good growth, with a 9% increase for fiscal 2009.
Financial performance has been strong, with general fund reserve levels consistently above the city's stated goal of 15%. For the close of fiscal 2008, the unreserved general fund balance stood at nearly $3.7 million, representing nearly 34% of total spending. The fiscal 2009 budget was adopted with a $590,000 fund balance drawdown for non-recurring capital outlays. Current estimates reflect a substantial shortfall in budgeted sales taxes for the current fiscal year; however, management has made budget cuts to contend with the current economic slow down and expects to end the year within budget.
The city's operating and maintenance (O&M) tax rate is somewhat above that of neighboring communities, although the overall property tax rate remains competitive. Fitch believes that while growth in property tax revenues may slow as the city reaches build-out, sales tax gains in its sales taxes as well as the continuation of conservative fiscal management practices will enable the city to maintain its favorable financial position in the longer term, although sales tax revenues year-to-date in fiscal 2009 are flat compared to fiscal 2008. Further, officials are reportedly considering gradually raising reserve levels in the future in order to meet the service demands of a stable and maturing community and revenue collection fluctuations due to increased reliance on economically-sensitive sales taxes.
Direct debt ratios are manageable, benefiting from significant utility fund support. Overall debt ratios climb to above average levels due to substantial borrowing by Lewisville ISD (GO bonds rated 'AA' by Fitch). Future debt financing plans are very limited, and debt amortization is rapid. The current offering is expected to have no impact on the tax rate for the coming fiscal year, with the interest and sinking fund tax rate projected to decline over time with the repayment of tax-supported debt.
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Contact:
Fitch Ratings
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Jose Acosta, +1-512-215-3726 (Austin)
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com
