Fitch Rates Williamson County, TX ULT Road Bonds, COs, and LT Rfdg Bonds ‘AAA’; Outlook Stable

AUSTIN, Texas

Fitch Ratings has assigned an ‘AAA’ rating to the following Williamson County, Texas (the county) bonds and certificates of obligations:

–$70.1 million limited tax refunding bonds, series 2015;

–$29.4 million limited tax refunding bonds, taxable series 2015;

–$100 million unlimited tax (ULT) road bonds, series 2015;

–$70 million combination tax and revenue certificates of obligation (COs), series 2015.

The refunding bonds are scheduled for a negotiated sale the week of March 30, 2015. Proceeds will be used to redeem certain outstanding obligations for savings. The ULTs and COs will be scheduled for a negotiated sale in May 2015. The ULT proceeds will be used for road improvements in the county; proceeds from the COs will be used for road and facility improvements.

In addition, Fitch affirms the ‘AAA’ rating on the following county bonds (pre-refunding basis):

–Approximately $201 million outstanding unlimited tax obligations;

–Approximately $617 million outstanding limited tax, COs and pass-through toll revenue obligations.

The Rating Outlook is Stable.

SECURITY

The unlimited tax bonds are payable from an unlimited ad valorem tax levied against all taxable property in the county. The limited tax obligations are payable from the county’s $0.80 constitutional ad valorem tax rate. The certificates are payable from the $0.80 tax rate and a limited pledge of surplus revenues from the county’s landfill operations.

The outstanding pass-through toll revenue and limited tax bonds are payable from payments received by the county pursuant to a pass-through toll agreement between the county and the Texas Department of Transportation (TxDoT) and additionally from the county’s $0.80 ad valorem tax rate.

KEY RATING DRIVERS

STRONG MANAGEMENT, CONSISTENT PERFORMANCE: A history of extensive planning and conservatism has allowed the county to provide infrastructure sufficient to meet increasing service levels while maintaining balanced operations and robust reserves. Continued service level growth at this rapid pace without commensurate tax base growth could lead to debt and budget pressure.

FLEXIBLE FINANCIAL FRAMEWORK: The county’s relatively low ad valorem tax rate provides flexibility to meet future obligations. Projected growth in key spending areas is aligned with reasonable revenue projections.

HIGH DEBT BURDEN: Overall debt is high, especially for the rating level, reflecting rapid regional growth. Modest pension and other post-employment benefits (OPEB) keep the fixed-cost burden on the budget from becoming unmanageable.

PRIME LOCATION & STRONG DEMOGRAPHICS: A strong transportation infrastructure provides easy access between the county’s affordable developable property and Austin’s broad employment base. Growth prospects are also supported by the county’s highly educated workforce and above-average income levels which Fitch expects to attract ongoing commercial and industrial development.

RATING SENSITIVITIES

FINANCIAL FLEXIBILITY: The rating is sensitive to shifts in fundamental credit characteristics including the county’s strong management practices and financial flexibility. The Stable Outlook reflects Fitch’s expectation that such shifts are unlikely.

CREDIT PROFILE

Williamson County occupies a sizable 1,135 acres in central Texas with a population of roughly half a million, which has doubled over the past 15 years. The county lies just north of Austin along the well-traversed interstate 35.

DIVERSIFIED ECONOMY WITH POSITIVE OUTLOOK

Williamson County’s economic activity includes technology, manufacturing, government, education, retail and agribusiness. The county benefits from an abundance of high technology firms, including the corporate headquarters of Dell Computer. A diversified employment base and the stabilizing influence of education, government and health care among top employers make the county less susceptible to technology cycle downturns. Strong employment growth averaging 3.9% annually over the past decade also lessens the impact of structural layoffs common to the competitive technology sector.

The county’s low unemployment rate of 3.8% as of Jan. 2015 compares favorably to the national average of 6.1% for the same period, reflecting above-average levels of educational attainment. Median household income trends 35% above the U.S. average.

The county continues to see new business entrants and expansion, particularly in the medical and education sectors. IHS Global Insights expects near term job growth to continue on a trajectory consistent with the recent past with the greatest growth in business services and construction sectors. The local economy has no material exposure to the oil & gas sector, and Fitch believes it stands to benefit from freed up labor and materials capacity associated with the recent slowing of growth in other parts of the state due to low energy prices.

RESILIENT TAX BASE; GROWTH POTENTIAL

The county’s $41 billion taxable assessed valuation (TAV) has more than tripled since 2000 as a result of strong residential growth, rising home prices, and an expanding commercial and manufacturing base. Growth leveled off during the recession, but picked up with modest growth of 2.2% and 3.4% in fiscal 2012 and 2013 respectively. Low levels of available housing stock have further increased TAV by 6.1% in fiscal 2014 and a robust 9.9% in fiscal 2015.

The Williamson County Appraisal District projects fiscal 2016 tax base growth consistent with fiscal 2015, reflecting further appreciation, new housing starts, commercial expansion and new development. Prospects for ongoing growth are strong considering the large number of new areas platted for development including a notable expansion to Sun City, Texas, the county’s 10,500-home, active retirement community, currently underway. The tax base is without concentration. Top taxpayers account for a modest 2.8% of fiscal 2015 TAV.

STRONG FINANCIAL FLEXIBILITY

The county’s conservative financial profile is exemplified by general fund reserve levels well in excess of policy targets. A fiscal 2014 unrestricted general fund balance of $74.7 million (53.5% of spending) reflects another year of strong revenue performance and prudent cost management. Officials project favorable-to-budget fiscal 2015 performance and conservatively project unrestricted reserves of $65 million (42% of spending), reflecting strategic application of reserves for capital projects consistent with policy guidelines.

The county applies up to 25% of surplus general funds, in excess of its unrestricted fund balance policy target (35% of budgeted expenditures), to fund capital projects. Officials anticipate this funding source to generate up to $8 million annually for capital projects and defray the cost of debt service while continuing to provide high reserve levels, projected to exceed 50% of spending through fiscal 2018.

HIGH DEBT & AFFORDABLE PENSIONS

Fitch anticipates the county’s high overall debt equal to 7.6% of market value to remain elevated based on long-term population growth projections for the region. The county has a history of providing infrastructure, particularly road improvements, to support regional growth. General fund supported capital expenditures and early debt retirements funded through the tax levy help to curb growth of the high debt burden.

The county provides pension benefits through the Texas County and District Retirement System (TCDRS). Funding levels are satisfactory at nearly 86% (78% using a more conservative 7% investment return assumption), and the county routinely funds 100% of its annual required contribution (ARC) to TCDRS. With modest unfunded pension and other post-employment benefits (OPEB) liabilities, the impact of the county’s combined debt service, pension and OPEB on its budget is sizable at 24% of governmental spending. The county provides OPEB through a self-funded single-employer plan. The unfunded actuarial accrued liability is very low at $41 million, representing less than 0.1% of the county’s market value.

BOND PROJECTS PREPARE FOR FUTURE GROWTH

Williamson County received strong support from voters in November 2013 authorizing $275 million in ULT road bonds and $40 million in LT bonds for parks and recreation development and improvements.

Road bonds will fund safety and expansion projects to alleviate congestion and to continue facilitating well-planned growth with population growth projected to reach 1 million in the next two decades. Transportation projects are identified through coordinated regional planning efforts with the Capital Area Metropolitan Planning Organization (CAMPO).

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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

–‘Tax-Supported Rating Criteria’ (Aug. 14, 2012);

–‘U.S. Local Government Tax-Supported Rating Criteria’ (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982165

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Fitch Ratings
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Rebecca Meyer, CFA, CPA, +1-512-215-3733
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Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
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