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MOODY'S ASSIGNS Aaa RATING TO TRAVIS COUNTY'S $21.31 MILLION CO, SERIES 2011 (LIMITED TAX), $22.6 MILLION CO, TAXABLE SERIES 2011 (LIMITED TAX), $1.86 MILLION BONDS, SERIES 2011, AND $3.8 MILLION UNLIMITED TAX ROAD BONDS, SERIES 2011

18 Apr 2011

Aaa RATING AFFECTS $190 MILLION IN UNLIMITED TAX DEBT AND $431.9 MILLION IN LIMITED TAX DEBT, INCLUDING CURRENT ISSUES

County
TX

Moody's Rating

ISSUE

RATING

Certificates of Obligation, Series 2011 (Limited Tax)

Aaa

  Sale Amount

$21,310,000

  Expected Sale Date

04/20/11

  Rating Description

General Obligation Limited Tax

 

Certificates of Obligation, Taxable Series 2011 (Limited Tax)

Aaa

  Sale Amount

$22,600,000

  Expected Sale Date

04/20/11

  Rating Description

General Obligation Limited Tax

 

Permanent Improvement Bonds, Series 2011 (Limited Tax)

Aaa

  Sale Amount

$1,855,000

  Expected Sale Date

04/20/11

  Rating Description

General Obligation Limited Tax

 

Unlimited Tax Road Bonds, Series 2011

Aaa

  Sale Amount

$3,765,000

  Expected Sale Date

04/20/11

  Rating Description

General Obligation, Unlimited Tax

 

Opinion

NEW YORK, Apr 18, 2011 -- Moody's Investors Service has assigned a Aaa underlying rating to Travis County's (TX) $21.31 million Certificates of Obligation, Series 2011 (Limited Tax), $22.6 million Certificates of Obligation, Taxable Series 2011 (Limited Tax), $1.855 million Permanent Improvement Bonds, Series 2011 (Limited Tax), and $3.765 million Unlimited Tax Road Bonds, Series 2011. At the same time, Moody's has affirmed the Aaa rating affecting $386.2 million in parity general obligation limited tax debt and $186.5 million in parity general obligation unlimited tax debt.

RATING RATIONALE

The limited tax bonds are secured by an ad valorem tax levied, within the limits prescribed by law, on all taxable property within the county. The unlimited road bonds, which will fund road, drainage and bridge improvements, are secured by an ad valorem tax levied, without limitation as to rate or amount, on all taxable property within the county. Proceeds from the certificates will be used to fund a wide variety of needs which includes purchasing equipment and vehicles and making improvements to county facilities and assets. The taxable certificates will fund the purchase of land and any buildings or structures thereon in downtown Austin for justice and administration purposes; since the building may eventually house private investment, the certificates are taxable. Proceeds from the limited tax bonds will be used to fund construction and improvement to county parks and to purchase land. Assignment of the highest credit rating reflects the county's expansive and diverse tax base, historically stable financial operations, and modest direct debt burden.

STRENGTHS

Substantial and diverse tax base in the State capital

Healthy General Fund balance with stable revenue stream

CHALLENGES

Cuts at the State level could mean additional expenses to the County

Recent declines in assessed valuations

DESPITE NEW CONSTRUCTION TAX BASE EXPERIENCES DECLINE

Travis County encompasses 1,040 square miles in central Texas, including the capital City of Austin (Aaa general obligation rating). The county's unemployment rate for February 2011 was a low 6.7% compared to the 8.2% at the State level and 9.5% for the Nation. The relatively low unemployment rate is largely attributable to the combination of employment in the technology sector and stability provided by the presence of higher education and government sectors. Major employers in the high tech sector include Dell (A2 senior unsecured rating, stable outlook), AMD (Ba3, positive outlook), Freescale Semiconductor (Caa1, stable outlook), and Samsung (A1, stable outlook). The major presence of state and local government as well as the University of Texas provides employment stability. The county's population has grown an estimated 24% since the 2000 U.S. Census to just over one million residents in 2011. The county's per capita income of $25,883 (from 2000 U.S. Census) is a favorable 131.9% of the state and 119.9% of the U.S.

After experiencing double digit tax base growth from fiscal years 2007 to 2009, the taxable valuation increased a modest 3.5% in fiscal 2010. Despite $1.7 billion in new construction, the fiscal 2011 tax base declined 4% to $94.4 billion. Another decline of 1% to $93.55 billion is projected for the 2012 fiscal year despite $1.32 billion in new market value. According to Moody's Economy.com (report dated March, 2011), Austin's outlook has been slightly lowered to reflect the effects of the state government deficit, but the moderate near-term recovery will continue thanks to growth in high-tech industries. Later in 2011, housing will advance, supported by ongoing job gains, a young working-age population, and relatively good credit quality. Longer term, the area's well-educated labor force, high concentration of technology businesses, and above-average population gains will yield an above-average performance.

MAJORITY OF REVENUES DERIVED FROM STABLE REVENUE SOURCE

Moody's believes the county's prudent management will continue to maintain reserve balances consistent with the policy and consistent with credits of Aaa quality. The county has historically maintained a solid financial position, anchored by sound reserve levels, conservative budgeting practices, and strong financial management. The General Fund is supported primarily (83%) from property tax revenues which provide a stable source of revenue. The county's General Fund balance policy requires a minimum of 11% of operating expenditures. The General Fund reserve increased from $67.5 million at FYE 2004 to $95.2 million at FYE 2007. The county experienced a General Fund reduction of $8.44 million at FYE 2008. Officials attribute the decline to increased capital outlay and a $3 million loss of investment income. Conservative budgeting and prudent monitoring of expenditures allowed the county to add $4.5 million to reserves in fiscal 2009, yielding a General Fund balance of $91.2 million (23.1% of revenues). Conservative budgeting continued in fiscal 2010 resulting in a large $22.6 million surplus which increased the total fund balance to $113.8 million, or 27.2% of General Fund revenues, and the unreserved, undesignated portion of the fund balance to $94.1 million, or 22.5% of General Fund revenues. The budget for fiscal 2011 includes a $19 million draw down on reserves although conservative budgeting could again result in better than budgeted results.

DEBT POSITION MODERATE; HEALTHY AMORTIZATION

Although the county plans to continue issuing debt on an annual basis, we believe the above-average amortization rate coupled with moderate tax base expansion will mitigate upward pressure on the debt burdens. The county's direct debt burden is modest at 0.7% represented as a percent of the fiscal 2011 full value. The overall debt ratio is slightly elevated at 5.1% due primarily to population and enrollment growth in school districts that have borrowed debt aggressively to create facility capacity. Amortization is favorable with 65.0% of principal retired in ten years. The county has $4.19 million remaining in debt authorization for road improvements and $200,000 for county parks. A bond election is planned for November 2011; officials report the county may ask voters for up to $150 million, which would not include funds for construction of a new civil courthouse. The amount would increase substantially if a courthouse is included in the election; however, this project is still under review.

PENSION AND OTHER POST EMPLOYMENT BENEFITS

All officials and regular employees of the county are members of a non-traditional defined benefits retirement plan administered by the Texas County and District Retirement System (TCDRS). This is a statewide, multi-employer agent system centrally administered by a board of trustees appointed by the Governor of Texas. The county has no fiduciary responsibilities concerning the plans. The employer and the employee make contributions based upon a percentage of the employee's total earnings. The total county contribution to the plan for fiscal year 2010 was approximately $28.2 million. The county's unfunded actuarial liability as of December 31, 2009 was approximately $104 million, and the funded ratio was a strong 87%.

Retired county employees and their dependants are eligible under certain conditions to elect continued coverage under the county's health care program upon retirement. The county currently contributes to the premium charges for such benefits for certain retirees (based on length of service). The county is self-insured for participating retirees and their dependants and claims are paid from current operating funds as incurred. Retiree benefits may be altered from time to time or terminated by the county. The county has determined that implementation of the current reporting provisions of GASB 45 would not comply with the requirements in Texas law and that complying with GASB 45 would result in publishing financial statements that are materially misleading; therefore, the County has not implemented GASB 45.

The county's most recent actuarial study estimated an unfunded actuarial liability of $212 million if funding of the annual required contribution is made annually. If funded annually, the estimated annual required contribution would be approximately $28 million. If these amounts are not funded annually, the estimated unfunded actuarial liability is approximately $374 million. Additionally, if not funded annually, the annual required contribution would be approximately $45 million. However, officials commented that these figures are based on a 2009 study that used "what if" scenarios had the County created a liability for OPEB, consistent with the provisions of the Texas Constitution for creating long-term debt, which the county has not done. The county has committed to budget annually for OPEB contributions which were $4.2 million in fiscal 2009, $4 million in fiscal 2010, and $5.3 million is budgeted for fiscal 2011. We believe compliance with GAAP is highly desirable and facilitates comparison across governments. In the future, our rating analysis will incorporate steps taken by the county to assess, fund, and manage the cost of its OPEB obligation. To the extent the disclosures do not provide sufficient information to assess the county's obligation compared to other governments, it could have a negative impact upon the county's rating.

WHAT COULD MAKE THE RATING GO UP: N/A

WHAT COULD MAKE THE RATING GO DOWN:

Significant reductions in General Fund reserves

Significant and continuous tax base declines

KEY STATISTICS

FY 2011 Full Value: $94.3 billion

Full Value per Capita: $93,550

2000 Per Capita Income: $25,883 (131.9% of state; 119.9% of U.S.)

Direct debt burden: 0.7%

Overall debt burden: 5.1%

Principal Payout (10 years): 68.4%

FY 2010 General Fund Balance: $113.8 million (27.2% of General Fund revenues)

FY 2010 Undesignated, Unreserved General Fund Balance: $94.1 million (22.5% of General Fund revenues)

Post Sale Limited Tax Parity Debt Outstanding: $431.9 million

Post Sale Unlimited Tax Parity Debt Outstanding: $190.3 million

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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New York, NY 10007
USA

MOODY'S ASSIGNS Aaa RATING TO TRAVIS COUNTY'S $21.31 MILLION CO, SERIES 2011 (LIMITED TAX), $22.6 MILLION CO, TAXABLE SERIES 2011 (LIMITED TAX), $1.86 MILLION BONDS, SERIES 2011, AND $3.8 MILLION UNLIMITED TAX ROAD BONDS, SERIES 2011
No Related Data.
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