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MOODY'S ASSIGNS Aaa UNDERLYING RATING TO THE TRAVIS COUNTY [TX] $36.05 MILLION LIMITED TAX REFUNDING BONDS, SERIES 2010A

29 Sep 2010

RATING AFFECTS $631.14 MILLION IN OUTSTANDING PARITY DEBT OBLIGATIONS INCLUDING THE CURRENT SALE

County
TX

Moody's Rating

ISSUE

RATING

Limited Tax Refunding Bonds, Series 2010A

Aaa

  Sale Amount

$36,050,000

  Expected Sale Date

09/28/10

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Sep 29, 2010 -- Moody's Investors Service has assigned a Aaa underlying rating to Travis County's (TX) $36.05 million Limited Tax Refunding Bonds, Series 2010. The obligations constitute direct obligations of the county, payable from the levy and collection of a direct annual ad valorem tax within the limits prescribed by law.

RATING RATIONALE

Assignment of the highest credit rating reflects the county's expansive and diverse tax base, historically stable financial operations, and modest direct debt burden. The current offering will refund a portion of the county's outstanding debt for an expected 4% +/- net present value savings and no extension of the final maturity. The parameters require a net present value of at least 3%.

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 June 2010 unemployment rate of 7.2% was well below the state (8.5%) and the nation (9.6%) for the same time period. 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 2009. Resident wealth levels are favorable as measured by per capita income that is 131.9% of the state and 119.9% of the U.S. averages.

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 (averaging 8.1% annual increases over the past five years). According to Moody's Economy.com, the Austin area will see a moderate recovery in 2010, as high tech rebounds. Longer term, the well-educated labor force, high concentration of technology businesses, and far above-average population gains will yield 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 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). The unreserved undesignated portion of the General Fund is net of encumbrances and funds reserved for compensated absences and totals $71.4 million, or a still healthy 18.1% of revenues. Officials anticipate a modest surplus at FYE 2010.

Property taxes account for 82.7% of the county's operating revenues. Due to the decrease in taxable value, all departments have been asked to submit a possible 5% expenditure reduction for the fiscal 2011 budget. The proposed fiscal 2011 budget is balanced with approximately $19.5 million of allocated reserves. Although the county consistently budgets for deficit spending, revenue projections are historically conservative, which generally result in positive operating 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 0.6% represented as a percent of the fiscal 2011 full value. The overall debt ratio is slightly elevated at 4.8% 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 $10.0 million remaining in debt authorization, of which $8.0 million is slated for road improvements and $2.0 million is for park improvements. A bond election is planned for 2011; officials report the county may ask voters for up to $300 million, which will include funds for construction of a new civil courthouse.

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 2009 was approximately $26.3 million. The county's unfunded actuarial liability as of December 31, 2008 was approximately $105.6 million, and the funded ratio was a strong 85.1%. The county's required contribution rate for fiscal 2010 is 11.44% of payroll.

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 no contractual or legal liability to honor other post employment benefits (OPEB) and has decided not to comply with the requirements of GASB 45.

The county's most recent actuarial study estimates 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. The county's fiscal 2009 contribution was $4.2 million. The budgeted amount of the county's OPEB contribution for fiscal 2010 is $4.96 million. 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.

KEY STATISTICS

2009 Population Estimate: 1,008,345 (24.1% increase from 2000 U.S. Census)

FY 2011 Full Value: $94.4 billion

Full Value per Capita: $93,612

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

Direct debt burden: 0.6%

Overall debt burden: 4.8%

Principal Payout (10 years): 65.0%

FY 2009 General Fund Balance: $91.2 million (23.1% of General Fund revenues)

FY 2009 Undesignated, Unreserved General Fund Balance: $71.4 million (18.1% of General Fund revenues)

Post Sale Parity Debt Outstanding (Limited and Unlimited Tax): $631.14 million

What would make the rating move - UP: N/A

What would make the rating move - DOWN

Significant reductions in General Fund reserves

Significant and continuious tax base errosion

The principal methodology used in rating Travis (County of) TX was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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

Gera M. McGuire
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 UNDERLYING RATING TO THE TRAVIS COUNTY [TX] $36.05 MILLION LIMITED TAX REFUNDING BONDS, SERIES 2010A
No Related Data.
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