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MOODY'S ASSIGNS Aa1 RATING TO THE TOWN OF FLOWER MOUND'S (TX) $3.6 MILLION CERTIFICATES OF OBLIGATION, SERIES 2011

06 Jul 2011

RATING AND AFFIRMATION AFFECTS $122 MILLION IN OUTSTANDING PARITY DEBT

Municipality
TX

Moody's Rating

ISSUE

RATING

Certificates of Obligation

Aa1

  Sale Amount

$3,550,000

  Expected Sale Date

07/18/11

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Jul 6, 2011 -- Moody's Investors Service has assigned a Aa1 rating to the Town of Flower Mound's (TX) $3.6 million Certificates of Obligation, Series 2011. In conjunction, we have affirmed the Aa1 rating on the town's outstanding parity debt affecting $118.4 million. Proceeds from the sale of the bonds will be used to construct waterworks and sewer system improvements and extensions.

SUMMARY RATINGS RATIONALE

The certificates are secured by a direct and annual ad valorem tax levied against all taxable property within the town, within the limits prescribed by law. Additionally, the certificates are secured by a limited pledge (not to exceed $1,000) of the net revenues of the Town's Waterworks and Sanitary Sewer System. The rating assignment and affirmation reflects the town's continued strong financial performance, despite a slowdown in the national economy, and the expectation that sound fiscal practices will continue given historical trends, a commitment to prudent management, and a reserve policy. The rating also reflects the town's predominantly residential base that experienced recent modest contraction, an economy that continues to experience moderate activity, and a manageable debt profile.

STRENGTHS

Sound fiscal management and satisfactory reserves consistent with the rating category

WEAKNESSES

Recent tax base contraction

DETAILED CREDIT DISCUSSION

RESIDENTIAL TAX BASE LOCATED IN THE DALLAS FORT WORTH METROPOLITAN AREA

Flower Mound is predominantly residential with single family residences accounting for approximately 73.4% of the total base. Historically a rapidly growing community, the town is conveniently located in the Dallas Fort Worth metropolitan area with a total population of 50,702 which was an increase of 226.5% over the prior decade, as reported by the 2000 U.S. Census. Preliminary estimates for 2011 indicate subsequent growth of 27.8% reaching a total of 64,790 residents. Wealth indicators within the town also as reported by the 2000 U.S. Census continue to trend above state and national levels with a 1999 per capita income of $34,699 which was 176.9% of the state, and 160.7% of the nation. The 1999 median family income was $98,055 or 213.8% of the state and 195.9% of the nation. Unemployment rates within the town continue to trend below the state and nation as reported by the U.S. Bureau of Labor Statistics. In 2010, the unemployment rate was 6.5%, which was well below the state's 8.2%, and the nation's 9.6% for the same time period.

Moody's believes taxable values within the town will continue to experience growth at more moderated levels compared to historical highs due to a slower rate of construction and modest commercial activity. Prior to fiscal year 2010, taxable values grew an annual average of 7.1% over the prior five years due to extensive single family construction. In fiscal year 2010, the rate of growth slowed dramatically with taxable values exhibiting modest growth of 0.9% to $6.9 billion. In fiscal year 2011, taxable values declined a modest 2.1% to $6.8 billion, a direct result of the national economy. Being a bedroom community, the town does not exhibit concentration with the top ten taxpayers accounting for 3% of fiscal year 2011 valuation. Currently, officials report several projects which have recently been completed, or are currently underway. Of notable mention include road expansion projects funded by the Texas Department of Transportation, and Regional Toll Revenues, projects within the medical park that will bring additional health care providers and related facilities to the area, and projects within the Lakeside Business District with companies in various industries. Additionally officials report commercial activity including restaurants and retail, and residential construction including a high end multifamily unit, and the purchase of parcels of land by a luxury home builder for single family residences. Despite the activity, officials are conservatively budgeting for flat growth in taxable values in fiscal year 2012, but expect growth over the near to intermediate term.

SOUND FISCAL MANAGEMENT CONTINUES

Moody's believes the town's historically strong financial management will continue given management's commitment to sound practices, a reserve policy, and no pressing needs that require a reduction in reserve. The town's financial policy calls for an unreserved fund balance of 15% ($6 million in fiscal year 2010) of General Fund expenditures. The town has consistently remained above this level with a General Fund balance that has exceeded $8 million over the past four years. In fiscal year 2010, the town exhibited an operating surplus of $451,000 increasing the balance to approximately $9 million (22% of General Fund revenues) with an unreserved undesignated portion of $8.8 million (21.5% of General Fund revenues) following an initial expectation of a deficit of $1.3 million. The town was able to yield a positive variance as a hiring freeze was implemented, some positions were eliminated or frozen, and the General Fund was able to receive its annual administrative transfer from the Utility Fund, despite decreased water and sewer revenues due to a wet year. In fiscal year 2011, officials report that the budget is faring better than original assumptions and expect an operating surplus of approximately $613,000 to the unreserved undesignated portion. However, officials report a majority of the surplus (approximately $600,000) will be transferred out for much needed technology upgrades, resulting in an essentially flat General Fund balance from the prior year.

The town receives a majority of its revenues from three sources: property tax, sales tax and franchise fees. Sales tax collections in fiscal year 2010 indicated positive growth of 6.8% to $6.9 million following the 5.4% decline in fiscal year 2009. Although officials report part of the increase recorded is attributed to one time purchases by the influx of medical companies, the trend continues to remain positive in fiscal year 2011. The town budgeted for a total of $6.7 million in collections, netting out the effect of the prior year one time sales. Year to date, officials report collections are 5.7% over the prior year, and expect that collections at the end of the year will be $300,000 (4.5%) higher than the budget for a total of $6.9 million.

FULLY FUNDED ANNUAL REQUIRED CONTRIBUTION (ARC) FOR PENSION AND MODERATE OPEB UNFUNDED LIABILITY

The town participates in the state wide Texas Municipal Retirement System (TMRS). In 2007, the town reduced its cost of living adjustment (COLA) to 0%, and has historically fully contributed its annual required contributed (ARC). In fiscal years 2007, 2008 and 2009, the town contributed $2.6 million, $2.9 million and $3 million respectively which was equal to 100% of its ARC.

The town also offers Other Post Employment Benefits (OPEB) to eligible employees. As of the actuarial valuation date of 12/31/2009, the town reported a $2.3 million unfunded liability. The town has since reduced the liability by $1 million by requiring all retirees after January 1, 2015, to pay the premium rate as determined by an actuary study, a change from a rate of a blended healthcare premium. Following the change, the town's annual OPEB cost in fiscal year 2010 was $206,623. If the town had funded the cost, an operating surplus of $244,000 would have still been reported in the General Fund. However, the town has opted to fund the liability on a pay as you go basis. As of 12/31/2010, the town's unfunded liability was $1.3 million, all of which was unfunded.

MODERATE DEBT PROFILE, DESPITE FAST GROWING COMMUNITY

Excluding self supporting debt, the Town's direct debt burden is modest at 1.2% (6.4% overall). Payout is rapid with 73.9% of principal retired in ten years. The town's long term capital plans includes possible annual issuance in the near to intermediate term largely for projects associated with the development of the western portion of the town. Issuance will depend significantly on the rate of development. We believe the rate of debt payout in conjunction with debt needs will allow the town to layer in additional debt without significantly impacting the current debt burden levels.

WHAT COULD MAKE THE RATING GO UP

Significant and continuous tax base expansion yielding taxable value growth

Continued growth in reserve levels

WHAT COULD MAKE THE RATING GO DOWN

Continued contraction in taxable values

Erosion of reserve levels

Significantly increased debt without corresponding taxable value growth

KEY STATISTICS:

2011 Taxable Valuation: $6.8 billion

2011 Full Value Per Capita: $104,648

1999 Per Capita Income: $34,699 (160.7% of US)

Direct Debt Burden: 1.2% (excluding self supporting debt)

Overall Debt Burden: 6.4% (excluding self supporting debt)

Payout of Principal (10 years): 73.9% (excluding self supporting debt)

2010 General Fund Balance: Approximately $9 million (22% of General Fund revenues)

Post-sale general obligation limited tax parity debt: $ 122 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Adebola Kushimo
Analyst
Public Finance Group
Moody's Investors Service

Nathan Phelps
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa1 RATING TO THE TOWN OF FLOWER MOUND'S (TX) $3.6 MILLION CERTIFICATES OF OBLIGATION, SERIES 2011
No Related Data.
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