Fitch Rates Brazoria County, TX’s ULT & L-T Refunding Bonds ‘AA+’; Outlook Stable
By Business Wire News
By Business Wire News
Fitch Ratings has assigned an ‘AA+’ rating to the following Brazoria County, Texas (the county) bonds:
–$7.9 million limited tax (LT) refunding bonds series 2016;
–$8.3 million unlimited tax (ULT) refunding bonds series 2016.
The bonds are scheduled for sale via negotiation the week of January 11 to refund a portion of the county’s outstanding debt for interest savings.
In addition, Fitch affirms the following ratings at ‘AA+’:
–$39.4 million ULT road bonds;
–$2.7 million general obligation (GO) refunding bonds;
–$34.6 million certificates of obligation (COs).
The Rating Outlook is Stable.
The ULT bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the county.
The GOs and COs are each secured by a limited ad valorem tax pledge on all taxable property within the county, not to exceed $0.80 per $100 of assessed value.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The county’s strong financial profile reflects solid reserves, positive operating margins, and prudent financial policies.
GROWING ECONOMY: Continued development in chemical manufacturing and petroleum processing is driving labor force growth and demand for housing, promoting residential development and boosting sales tax receipts. Unemployment is low and income metrics are generally above state and national averages.
CONCENTRATED TAX BASE: The tax base is concentrated in chemical manufacturing and petroleum processing. However volatility in these industries has been minimal, particularly with ongoing investment by the largest taxpayers in the area.
AVERAGE DEBT PROFILE: The county’s overall debt ratios are high, driven by debt of underlying cities, school districts, and special districts. Carrying costs are low and amortization rapid, and future capital needs appear manageable, focusing primarily on road construction and maintenance as a result of the economic development.
SHIFT IN FUNDAMENTALS: The rating is sensitive to the county’s strong financial management practices that help mitigate concentration in the tax base.
Brazoria County is located immediately south of Houston and is bordered by the Gulf of Mexico and Fort Bend, Galveston, and Matagorda Counties. The county’s 2014 population of 338,124 is up one-third from the 2000 census and has grown steadily over the past decade. The largest city is Pearland (GO bonds rated ‘AA’, Stable Outlook by Fitch), with a population of approximately 112,300.
GROWING ECONOMY CONCENTRATED IN PETROLEUM AND CHEMICAL MANUFACTURING
The county’s economy centers on chemical manufacturing and petroleum processing, with the presence of several other industries including fishing, tourism, government, and agriculture. The Port of Freeport, the 21st largest port in the U.S. in terms of foreign tonnage, provides critical transportation access for the region’s dominant chemical manufacturing and petroleum processing businesses.
Dow Chemical Co. (rated ‘BBB’/Rating Watch Positive) is the largest employer and taxpayer in the county with 4,200 employees and 12% of fiscal 2015 taxable assessed valuation (TAV). Dow Chemical’s investment in the community continues to expand, along with other chemical manufacturers including Germany-based BASF and Chevron Phillips Chemical Company. While the majority of industrial expansions are at chemical manufacturing plants, downstream oil and gas sectors also play a role in the county economy. Houston-based Freeport LNG is constructing a $4.6 billion expansion of their existing natural gas liquefaction facility.
The county’s TAV has experienced moderate growth since fiscal 2012, averaging about 4% increases year-over-year. Growth is expected to continue, augmented by previously abated properties added to the tax rolls. Overall, the largest taxpayers make up a high 25.6% of fiscal 2015 county TAV and reflect the dominant economic role of the prevailing industries.
Fitch notes that the historical stability of these industries and the ongoing diversification of the regional economy somewhat offset concentration concerns. The unemployment rate remained low at 4.7% in October 2015, and income metrics are above state and national averages.
POSITIVE OPERATING RESULTS, STRONG RESERVES
The county is reliant primarily on property and sales taxes, making up approximately 65% and 15% of general fund revenues, respectively; these two sources have been the leading drivers of revenue growth over the past decade.
Robust economic activity and resultant tax revenue growth have also supported increases in reserve levels over the last five years. Fiscal 2014 ended with $53.8 million in unrestricted general fund balance, or a strong 64.3% of spending. Unaudited results for fiscal 2015 point to another year of healthy surplus, estimated at almost $10 million–due in part to very strong sales tax performance.
The fiscal 2016 budget is balanced and does not deviate significantly from prior years. The county’s history of conservative budgeting and expected further growth in sales tax receipts will likely lead to another year of positive operations.
MIXED DEBT PROFILE
The county’s overall debt levels are elevated at $5,693 per capita and 6.1% of fiscal 2016 market value and are comprised primarily of overlapping debt. Potential capital needs include the construction of a toll road connecting Brazoria County to Harris County, although the specifics of the project and its funding sources are still undetermined. No other capital needs are currently planned. Amortization of outstanding county debt is rapid, with 73.5% of principal paid off in ten years.
MANAGEABLE PENSION, OPEB LIABILITIES
The county fully funds its annual required contribution (ARC) to a statewide pension program and has an affordable other postemployment benefit (OPEB) liability. Fitch considers the county’s pension funded ratio adequate at 75.3% funded (using a 7% investment return assumption) as of the Sept. 30, 2014 actuarial valuation. Carrying costs, including debt service, pension ARC, and OPEB contribution, were low at 10.5% of fiscal 2014 total governmental expenditures.
Additional information is available at ‘www.fitchratings.com‘.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in Fitch’s applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Municipal Advisory Council of Texas.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
Leslie Ann Cook
Fitch Ratings, Inc.
111 Congress Ave, Ste 2010
Austin, Texas 78701
Rebecca Meyer, CFA, CPA
Elizabeth Fogerty, +1 212-908-0526