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Fitch Rates Corpus Christi, Texas’ PPFCOs ‘AA’; Outlook Stable
Wireless News January 29, 2012
Wireless News 01-29-2012 Fitch Rates Corpus Christi, Texas’ PPFCOs ‘AA’; Outlook Stable Type: News go to web site corpus christi texas
Fitch Ratings assigns an ‘AA’ rating to the following Corpus Christi, Texas’ (the city) limited tax debt:
–$8 million public property finance contractual obligations (PPFCOs), series 2012.
The Rating Outlook is Stable.
The securities are scheduled for private placement. Proceeds will be used to make energy improvements to various public facilities and to pay related costs of issuance.
The PPFCOs are secured by a limited ad valorem tax pledge, subject to the city’s $0.68 per $100 of taxable assessed value (TAV) tax rate limit for combined operations and non-voter-approved debt service. Given the availability of taxing margin within the $0.68 limit, no rating distinction is made between voter-approved and non- voter-approved tax supported debt.
KEY RATING DRIVERS:
STABLE FINANCIAL PROFILE: General fund reserves remain comfortably above the city’s minimum 10 percent fund balance policy, enabled by management’s conservative and prudent financial practices. General fund liquidity is sufficient.
DIVERSE TAX BASE: Modest TAV growth in fiscal 2012 reversed the prior year’s 4 percent loss. The city’s tax base is diverse, generally stable, and has historically experienced healthy rates of growth. Taxpayer concentration is minimal.
ECONOMIC SECTORS EXPANDING: Much of the current commercial/ industrial development underway or planned revolves around the large petrochemical industries, refineries, associated oil/gas support industries, and shipping/port activity that have traditionally anchored the Corpus Christi economy. The city serves as a regional employment center, and while not immune from the effects of the economic downturn, unemployment rates have remained below state and national averages.
BELOW AVERAGE SOCIO-ECONOMIC INDICATORS: Area population growth trends are modest and below those of the state; income/wealth levels are below state and national levels.
MODERATELY HIGH OVERALL DEBT: Overall debt levels are moderately high, although the city’s debt profile is characterized as moderate, aided by considerable self-supporting debt.
Situated on the Gulf Coast, Corpus Christi is the eighth largest city in Texas and serves as the regional economic center for a 12- county area. At 7.1 percent as of October 2011, city unemployment levels remain slightly below those of the county and MSA and more notably remain below state and national levels as they have since 2006. Local wealth levels are below average, although area cost of living is relatively low.
The city’s economic base consists primarily of petrochemical and shipping, tourism, agriculture, higher education and the military. Fitch considers the diversity of the area economy a positive credit factor as it can more easily weather economic disruption in specific sectors. Management reports various commercial/industrial projects underway or planned, which generally will capitalize upon the area’s traditional economic strength in the energy sector and associated industries. Of note is the Las Brisas development (a coke-fired electric power plant) which will eventually be added to the city’s tax rolls and Tianjin Pipe (a steel pipe mill), a $2 billion project adjacent to the Port of Corpus Christi (the port) that has recently broken ground. It is projected to be one of the largest Chinese investments in the U.S., adding 600 permanent jobs to the area. In addition, there has reportedly been an uptick in economic activity given the city’s location adjacent to a relatively recent oil/gas reserve discovery (the Eagle-Ford Shale) and its role in oil/gas shipping, processing, and support industries.
The port ranks as the sixth largest in the nation and 44th in the world based on tonnage. The Corpus Christi Army Depot is the largest industrial employer in South Texas and is reported to be adding up to 1,000 employees over the near-term; several U.S. Navy installations are also located in the area. Tourism is also an important component of the economy, with Padre Island National Seashore and Mustang Island State Park as leading area tourist attractions.
The tax base is sizeable at nearly $18 billion in market value. Taxpayer concentration is minimal at 5.5 percent for fiscal 2012. Tax base gains have historically been solid, averaging about 8.5 percent annually from fiscal years 2006 – 2010. TAV declined a modest 4 percent in fiscal 2011, but returned with a modest 1.5 percent gain in fiscal 2012, reportedly attributable in large part to additional commercial/retail development. City officials conservatively estimate another modest TAV gain of no more than 2 percent for fiscal 2013. Given the reported level of economic activity in the area, Fitch considers this projection reasonable.
The city maintained its stable financial profile in fiscal 2010 despite the year’s recessionary pressures on sales tax revenues. Sales taxes currently represent the third largest operating revenue source in the general fund. Management addressed the year’s revenue decline with various mid-year spending cuts. Planned use of excess reserves to fund one-time capital equipment and improvements as permitted under the city’s fund balance policy brought the total general fund balance down by $1 million to a still healthy $29.3 million or 15.1 percent of spending; the unreserved portion declined a slightly larger than projected $1.4 million to $25.9 million or 13.3 percent of spending. Nonetheless, both portions of general fund balance remained in excess of the city’s 10 percent policy goal.
For fiscal 2011, due to additional capital spending that was in part unbudgeted, management currently anticipates a larger $1.8 million draw on reserves. The resulting total general fund balance is estimated at $27.5 million or about 13.7 percent of spending. Overall financial performance was bolstered by a rebound in sales tax revenues that exceeded budgeted numbers by 8 percent. The $198 million fiscal 2012 general fund operating budget is balanced and generally flat. Year-to-date operations are reportedly in line with the budget and city officials report sales tax performance in the first quarter is up 11 percent above budget. Year-end reserve levels are currently projected to remain at the fiscal 2011 year-end level of $27.5 million, which appears reasonable given spending and revenue performance to date. go to website corpus christi texas
Overall debt levels are moderately high at 5.1 percent of market value and $3,100 on a per capita basis, primarily due to debt of the large number of school districts and the local community college. Payout is above average with 60 percent principal retired in 10 years. As approved by city ordinance, this issuance will be used for energy saving improvements to various public facilities. City officials are currently considering approaching voters this November for additional GO authorization in the amount of $45-$55 million to fund future capital projects; Fitch currently rates the city’s limited tax GO debt ‘AA’ with a Stable Outlook.
The city participates in the statewide, agent multiple-employer Texas Municipal Retirement System (TMRS) for the majority of its employees. Recent legislative changes that have allowed for the restructuring of the system’s funds will boost most participants’ funded positions and reduce contribution rates, including those of Corpus Christi. The city’s funded position was low at 53 percent as of Dec. 31, 2009, but has since improved largely due to the aforementioned change to a funded ratio of 74.5 percent as of Dec. 31, 2010. The city also reduced its pension liability somewhat with modifications to various built-in assumptions (such as an annual COLA for retirees). Management reports that the city will contribute at a higher than required funding level in plan year 2012 that if continued, will further improve its funded position over time.
Additional information is available at ‘fitchratings.com’.
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