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MOODY'S ASSIGNS Aaa RATING TO THE CITY OF PLANO'S $21.4 MILLION GENERAL OBLIGATION BONDS, SERIES 2011

14 Jan 2011

Aaa RATING AFFECTS $358.6 MILLION IN PARITY DEBT, INCLUDING CURRENT ISSUE

Municipality
TX

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2011

Aaa

  Sale Amount

$21,400,000

  Expected Sale Date

01/24/11

  Rating Description

GOLT

 

Opinion

NEW YORK, Jan 14, 2011 -- Moody's Investors Service has assigned a Aaa rating to the City of Plano (TX) $21.4 million General Obligation Bonds, Series 2011. At the same time, Moody's has affirmed the Aaa rating on the city's $337 million in outstanding general obligation debt.

RATINGS RATIONALE

The bonds, which are secured by a limited ad valorem tax pledge, will be used for various public improvements including streets, parks and a fire station. Assignment of the high quality Aaa rating reflects an affluent and large tax base, strong financial management; and a manageable debt burden with annual plans for debt issuances.

STRENGTHS

Large and diverse tax base

Strong wealth levels

Healthy General Fund reserve

CHALLENGES

Recent declines in tax base

Projected gap in revenues and expenditures for 2012

TREND OF AD VALOREM GROWTH REVERSED IN FISCAL 2010

Plano serves as a hub for corporate headquarters and a desirable residential location in the Dallas-Ft. Worth Metroplex. The city has historically benefited from rising home values and the stability of the commercial and corporate base. Population boomed with a 73% increase between the 1990 and 2000 Census years and increased another 20% between the 2000 Census and the 2011 estimated population of 266,600. Until the recent economic downturn, values have consistently but moderately improved at a five year average annual pace of 4% through fiscal 2009. In tax base decreased 1.1% in fiscal 2010 and another 3.2% in fiscal 2011 but remained a sizable $24.6 billion in fiscal 2011. The declines are attributed to general stress on both residential and commercial values and is modest in comparison to other markets in the U.S.

The city's October 2010 unemployment rate of 7% in lower than the 7.9% rate for the State and the 9% rate for the US. Among the city's largest taxpayers and major employers are the headquarters for Electronic Data Systems and J.C. Penney. About 35% of the total available land remains undeveloped, with the majority zoned for commercial and industrial purposes. Of the land zoned for residential use, about 90% has already been developed. Resident wealth indicators remain strong, with the $36,514 per capita income equal to 186% of the State and 169% of the US. Going forward, Moody's believes the city should continue to benefit from a healthy balance between commercial and residential taxpayers and evidence of new economic development could offset declines on existing properties to result in at least flat valuations for the near term.

CONSERVATIVE FINANCIAL MANAGEMENT MAINTAINS HEALTHY GENERAL GUND RESERVE

A key factor in Plano's prime credit rating is the quality of its financial management, including comprehensive fiscal planning and reporting. The city has a long-standing practice of maintaining budget contingency plans to address sudden drops in revenue, which have been useful as the economic slowdown affects revenues such as sales taxes. Management usually estimates revenues and expenditures conservatively, upholding the ending balance above the city's policy of maintaining reserves equivalent to 30 days of operating expenditures. The original fiscal 2010 budget included a $10 million draw down on the General Fund balance; however, with conservative expenditure spending and better than expected revenues, the actual deficit was $1.3 million. Over the last three fiscal years (2009-2011), the city has eliminated 129 full time positions and 17 part time positions demonstrating an ability and willingness to close budget gaps as necessary.

The $34.4 million unreserved General Fund balance in fiscal 2010 was a healthy 16.6% of General Fund revenues and consistent with prior year reserve levels. In 2010, property taxes generated 40% of General Fund revenues while 29% were derived from sales tax revenues. Sales tax collections in fiscal 2010 totaled $58 million which exceeded the budgeted amount. Management conservatively budgeted for $57 million in sales taxes for fiscal 2011 and anything collected over this amount will be used for one time capital expenditures. Year-to-date sales tax revenues are $800,000 over the prior year-to-date. For the 2012 budget, a $16 million gap between revenues and expenditure has narrowed to a $10 million gap which is currently being reviewed and evaluated by a budget committee to prioritize services and develop the budget going forward. Moody's believes city management will continue to maintain adequate reserve levels and implement the necessary measures to retain structural balance reflecting the highest quality Aaa rating.

BELOW-AVERAGE DEBT LEVELS, WITH MANAGEABLE FUTURE BORROWING PLANS

The city's debt levels relative to total assessed value remain modest with a direct debt burden of 1.4%, which considers $3.8 million in self-supported debt by the water and sewer system. An overall debt burden of 6.0% reflects growth in overlapping school districts. There is no variable rate debt outstanding and no derivative products in use. Debt payout is rapid with 70.4% of outstanding principal to be retired over the next ten years. In May 2009 city voters approved $132 million in new bond authorization for street improvements, park development, new fire facilities, and existing facility renovations. After this issue, the city will have a total of $138.8 million in voter authorized but unissued debt remaining including authorizations from prior elections. Officials indicate the city plans to issue approximately $30 million annually without significant increases to the debt service tax rate.

WHAT COULD MAKE THE RATING GO DOWN

Significant decreases in General Fund balance

Trend of substantial declines in tax base

KEY STATISTICS

Estimated population: 266,600

FY 2011 Full value: $24.6 billion

Full value per capita: $93,595

Direct debt burden: 1.4%

Overall debt burden: 6.0%

Principal payout in 10 years: 70.4%

FY 2010 General fund balance: $41.4 million (20% of General Fund revenues)

FY 2010 Unreserved, undesignated general fund balance: $34.4 million (16.6% of General Fund revenues)

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 and 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

Kristin Button
Analyst
Public Finance Group
Moody's Investors Service

Leslie Lukens
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
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USA

MOODY'S ASSIGNS Aaa RATING TO THE CITY OF PLANO'S $21.4 MILLION GENERAL OBLIGATION BONDS, SERIES 2011
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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