Fitch Affirms Boerne, Texas' GOs at 'AA-'; Outlook Stable

Business Wire

AUSTIN, Texas--(BUSINESS WIRE)--

Fitch Ratings takes the following rating action on the city of Boerne, Texas' (the city) general obligation bonds (GOs):

--$27.4 million GOs affirmed at 'AA-'.

The Rating Outlook is Stable

SECURITY

The GO bonds are a general obligation of the city, payable from the collection of property taxes levied against all taxable property within the city, subject to a constitutional limit of $2.50 per $100 assessed valuation.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: Boerne's solid financial performance is characterized by conservative budgeting and healthy reserves. Sizeable fund balances are a key credit mitigant to the city's above-average sales tax exposure.

SMALL ECONOMY; STRATEGICALLY LOCATED: Boerne is nestled in the Texas Hill Country on Interstate Highway 10 (IH10), providing ready access to nearby San Antonio. The city's strategic location attracts a notable tourism trade and increasing levels of commercial development. The city's income and wealth levels approximate national averages; county levels trend above-average.

EXPANDING TAX BASE: The city's tax base is resilient, registering solid post-recession growth; growth prospects are strong. Market value per capita trends above average and the tax base has no concentration.

MANAGEABLE DEBT: Elevated overall debt reflects rapid growth needs of the local school district. The city's carrying costs including debt service, pension and other post-employment (OPEB) contributions place a moderate burden on the governmental budget; near-term capital needs are modest.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the city's sound financial management practices. The city's history of reserve adequacy and sound financial management practices indicates expected rating stability. Continued economic expansion and diversification at a measured pace would position the city for positive rating action over the intermediate term.

CREDIT PROFILE

Boerne is located 30 miles west of San Antonio with a population of about 11,500.

GROWTH SUPPORTS STABLE FINANCES

Solid historic financial performance is evidenced by general fund reserves in the 40% to 65% of spending range. Financial performance is consistently favorable to budget and includes moderate pay-as-you-go capital spending. The city completed fiscal 2012 with a net surplus of $1.3 million (11.7% of spending) bringing unrestricted reserves to $5.9 million, a strong 51.3% of spending and transfers out.

Sales tax revenues contribute 44% to general fund revenues, followed by non-tax sources (39%) and ad valorem tax revenues (14%). Fiscal 2012 sales tax revenues increased a strong 7.1% to $4.7 million, in line with 10-year average growth of 7.7%. There is some sector diversity within the top 15 contributors although they comprise a large 40% of total sales tax receipts. Although generally exposed to above-average volatility, the city's sales tax revenues have grown steadily over the past 10 years with just one modest dip, in contrast to sharp swings typically seen in municipal sales tax trends during economic cycles.

An expanding revenue base has funded the city's essential services, particularly its public safety needs. Five-year expenditure growth averaging 7.5% through fiscal 2012 (net of capital) reflects the city's establishment of a full-time fire department and growth of its police force. The fiscal 2014 budget completes substantive base level funding of the city's public safety force.

Management projects to complete fiscal 2013 with a $452,000 net surplus (3.6% of spending) driven by continued revenue strength and prudent cost management. The balanced fiscal 2014 budget includes moderate growth which Fitch considers reasonable in relation to recent trends.

MANAGEABLE DEBT PROFILE

Elevated overall debt of 6.2% per capita results from rapid growth pressure of the local school district. The city's fiscal 2012 carrying costs represent a moderate 25.2% of its governmental budget; a moderate 55% of principal amortizes in 10 years. The city's capital plans are manageable, without expectation of significant new debt in the immediate future.

Boerne participates in the Texas Municipal Retirement System (TMRS) and fully funds its annual required contributions at the maximum TMRS rate. Officials anticipate the potential for additional one-time contributions above the annual required contribution over time to bolster the plan's funding level; at 67.8%, the city's funding level falls just below Fitch's moderate threshold of 70% (based on a 7% investment rate assumption). While the city offers a defined benefit retiree health plan, there are currently only two plan participants; the city's OPEB obligation is de minimus in relation to market value.

CITY BENEFITS FROM PROXIMITY TO SAN ANTONIO

Steady population growth spilling over from San Antonio has spawned a variety of residential development projects in Boerne over the past decade. While build-out stalled during the recession, demand is picking up and the city expects to see 400 developable lots come on line in the next couple of months and about 2,000 lots in the next 12-18 months.

Boerne is the commercial hub of Kendall County whose income and wealth levels trend 30% to 40% above national averages. The city reports about 30% of its population commutes east to take advantage of the broad San Antonio employment base. This is reflected in the county's low unemployment rate of 5.4% as of July 2013.

The city reports new business development and expansion, especially within its downtown commercial district and along major transportation corridors. New and expanded auto dealerships, financial, health services, and food processing businesses continue to diversify the local economy historically anchored in tourism, agribusiness, and manufacturing.

EXPANDING TAX BASE

The city's taxable assessed valuation (TAV) grew at a strong average annual pace of 9.2% since 2007. Residential properties comprise 60% of the tax base, followed by commercial and industrial at 30%. Market value per capita is an above average $114,000 based on 2013 certified taxable values.

Significant city, county and Texas Department of Transportation (TXDOT) public infrastructure investments position Boerne for continued growth. Management anticipates TAV to increase at moderate rates in the next several years which Fitch considers likely given the number of residential and commercial developments underway.

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=803215

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Contact:
Fitch Ratings
Primary Analyst:
Rebecca Meyer, +1-512-215-3733
Director
111 Congress Ave., Suite 2010
Austin, Texas 78701
or
Secondary Analyst:
Blake Roberts, +1-512-215-3741
Associate Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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