RATING AFFECTS $631.14 MILLION IN OUTSTANDING PARITY DEBT OBLIGATIONS INCLUDING THE CURRENT SALE
Limited Tax Refunding Bonds, Series 2010A
Expected Sale Date
General Obligation Limited Tax
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.
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.
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
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
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.
Gera M. McGuire
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS Aaa UNDERLYING RATING TO THE TRAVIS COUNTY [TX] $36.05 MILLION LIMITED TAX REFUNDING BONDS, SERIES 2010A
Moody's Investors Service
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