The bonds are scheduled for sale via negotiation as early as
In addition, Fitch affirms the following ratings for the city:
The Rating Outlook is Stable.
Permanent improvement bonds are voted general obligations of the city. Both the bonds and the COs are secured by a property tax levy that is limited to
KEY RATING DRIVERS
PRUDENT FINANCIAL MANAGEMENT: The city maintains satisfactory reserve levels and a consistent record of conservative budget practices. Fitch expects reserves to remain healthy given the city's sound management policies.
STRONG REGIONAL ECONOMY; RAPID GROWTH: The city benefits from its location within the strong and diverse
LARGE DEBT PROFILE: The city's high debt levels are the key credit risk. Rapid growth and development, as well as sizable overlapping municipal utility district (MUD) debt, yields a high debt burden unlikely to change given growth related needs.
SALES TAX DEPENDENCE: The city relies heavily on sales tax revenues for operations, but healthy reserve levels temper risk from volatility in sales tax performance.
RESERVES CREATE FINANCIAL CUSHION: Fitch expects the city to retain its healthy reserve position to counterbalance concerns over the reliance on sales tax revenue and the high overall debt levels, credit factors that Fitch believes limit the rating to its current level.
MANAGEMENT PRACTICES SUPPORT HEALTHY FINANCIAL PROFILE
The city maintains a sound financial profile with healthy general fund reserve levels in excess of its formal fund balance policy. The city's policy is to maintain reserves equivalent to two months (roughly 17%) of recurring operating expenditures. The unrestricted general fund balance at the close of fiscal year 2013 was
The city's annual budget process prudently includes the preparation of a multi-year forecast. The 2015-2017 forecast anticipates use of general fund reserves resulting in reserve levels reaching a low point of 20% of spending in fiscal 2016, consistent with the city's minimum reserve policy. Fitch believes the city is likely to continue its practice of outperforming the budget and views healthy reserves as a key mitigant to sales tax volatility and a high debt load.
ROBUST SALES TAX ACTIVITY; GROWTH RELATED SPENDING
Economically sensitive sales taxes typically comprise about 30% of general fund revenues. Receipts increased by a strong 7% in fiscal 2013, and year-to-date receipts for fiscal 2014 are up an additional 7% over the prior year. The city projects future annual growth of 6% which Fitch believes is somewhat aggressive though consistent with recent figures.
The city's expense base is largely driven by service related costs associated with rapid growth, reflected in increases to public safety and public works. The self-funded health insurance plan recently saw a large increase in claims, resulting in a large projected increase to premiums in fiscal 2015. The proposed budget for fiscal 2015 includes a
HIGH DEBT BURDEN; OTHER LONG-TERM LIABILITIES MANAGEABLE
Fitch expects debt levels to remain high. Overall debt is
The city participates in the Texas Municipal Retirement System for pension benefits to civil employees and has contributed 100% of its annually required contribution (ARC) for at least the last three fiscal years. The funded position of the city's plan is adequate at 82% for fiscal year 2013, based on an assumed 7% rate of return which Fitch considers reasonable. Other postemployment benefits (OPEB) are handled on a paygo basis. The city's OPEB liability is modest, offering only an implicit rate subsidy. Carrying costs for debt service, 100% funding of the pension ARC, and OPEB expense are average at 22% of governmental fund spending.
TRANSITIONING BEDROOM COMMUNITY WITH ACCESS TO
Wealth indicators are substantially higher than state and national levels, with median household income 68% higher than the national average. Employment growth is robust, yielding an unemployment rate of 4.2% for
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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