Fitch Rates San Angelo, Texas' Series 2009 GOs and COs 'AA'; Outlook Stable
Source: Business Wire
Scheduled to sell June 22 via negotiation, the COs and GOs are direct obligations of the city, payable from a limited ad valorem tax levied on all taxable property in the city. The COs are further secured by a limited pledge of surplus net revenues not to exceed $1,000 of the city's waterworks and sewer system. Fitch does not view the additional pledge as an integral part of the rating because of the very limited amount. Proceeds will finance various city facility and street improvement projects, acquire/equip fire trucks, refund a portion of the city's outstanding debt, and pay costs of issuance.
The 'AA' rating reflects the city's steady economic growth and consistently sound financial profile, supported by financial policies and practices that include the recent adoption of a formal capital improvement plan. Reserve levels are healthy, and the city recently adopted formal fund balance policies for its major funds. Fitch believes continued expansion of San Angelo's tax base and retail activity is likely, albeit at a slowed pace, given the city's relatively diverse economy and its prominence as a regional hub. Future economic growth, along with completion of sizeable water and wastewater utility capital projects, remains a key rating driver that will position the city well over the next five to 10 years. Fitch considers the city's low direct debt profile as balancing the high overall debt levels that result from recent issuances by the local school district. The above average debt tax burden and the city's property tax rate, which is above average and higher than those of other regional cities could present constraints in the future. However, the city has managed to reduce the tax rate modestly over the past several fiscal years and believes further reductions are a priority. Fitch views favorably the city's conservative financial management practices and believes this management style should provide financial flexibility during periods of economic uncertainty.
The city, which has an estimated population of roughly 92,000, encompasses almost 59 square miles and is located in western-central Texas. Since the 2000 Census, population growth has lagged the state, equaling less than 1% annually. The city's economy is stable, anchored by agriculture, education, medicine, government, and manufacturing. In addition, there is a sizeable military presence at nearby Goodfellow Air Force Base. Although taxable assessed valuation (TAV) growth was more minimal in fiscal 2009, gains had accelerated over the prior five fiscal years at an average of almost 6.5%. Staff reports that both appreciation of existing properties and ongoing residential and commercial development have contributed to the tax base increases.
The city's financial performance has been consistently sound, with actual results that typically better original budget projections and general fund reserves of about 20% or higher of spending over the past five fiscal years. Unaudited fiscal 2008 numbers currently project comparable results with a total fund balance of $10.7 million or approximately 21% of spending, despite a one cent decline in the property tax rate and approximately 6% increase in general fund expenditures from the prior year. Fitch notes that the city's audit report is late, and the city's intent to complete the audit in a more timely fashion going forward alleviates some concern. City officials report that fiscal 2009 general fund results point to a modest surplus and corresponding increase in reserve levels. Sales tax revenues, which accelerated in recent years as the city's retail base expanded and shopping activity from residents in outlying areas increased, returned to more historic steady but moderate growth levels in fiscal 2008 at an almost 3% increase from the prior year. Staff reports that fiscal 2009 year-to-date sales tax receipts are running about 3% ahead of budgeted numbers.
Direct debt levels are modest, benefiting from a sizeable amount of GO debt that is self supporting. Overall debt levels are now moderately high at 5.8% of TAV in light of recent issuances by the local school district. The city's future borrowing needs are manageable and the current pace of amortization is above-average at almost 62% of principal retired in 10 years. However, Fitch anticipates that the rapid pace of amortization will slow somewhat in conjunction with stated plans by city officials to better align long-lived assets with future debt issuances.
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Fitch Ratings, Austin
Rebecca Moses, 512-215-3739
Steve Murray, 512-215-3729
or
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