OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to Fort Worth, Texas $165.2 million (est.) general purpose refunding and improvement bonds, series 2016.

The bonds are scheduled for a competitive sale on May 25, 2016. Proceeds will be used to refund a portion of the city's outstanding tax-supported debt for interest savings and finance various infrastructure improvements.

In addition, Fitch affirms the following ratings:

--$680.8 million general purpose bonds and certificates of obligation outstanding (pre-refunding) at 'AA+';
--the city's Issuer Default Rating (IDR) at 'AA+'.

The Rating Outlook is Stable.

SECURITY
Ad valorem tax, limited to $1.90 per $100 of taxable valuation for all city purposes.

KEY RATING DRIVERS

Fort Worth's 'AA+' rating reflects Fitch's expectation of strong operating performance throughout the economic cycle as well as the city's moderate long-term liability burden. The city has solid economic and revenue prospects and significant control over revenues and spending, and has recently demonstrated strong budget management that Fitch expects to continue. Fort Worth has weathered a series of challenges, including a collapse of natural gas prices and reporting deficiencies that led to replacement of the city's process management systems. Recent results indicate significant progress, and revenue performance has been healthy since the recession.

Economic Resource Base:
Fort Worth is a major anchor in the Dallas-Fort Worth regional economy with a population of roughly 810,000. The metropolitan area employment base is extensive, and while military-related spending still accounts for a significant part of the local economy, recent gains in other sectors, such as services, construction, and trade have diversified the labor force. In addition, ranching, manufacturing, technology, education, and aerospace are significant components of the Fort Worth economy and serve to diversify economic activity. Economic prospects for both the city and the metropolitan area as a whole are positive.

Revenue Framework: 'aa' factor assessment
Growth prospects for revenue appear positive, based on solid post-recession gains in both taxable values and sales tax receipts as well as ongoing economic development. Property tax rates, while high compared to other Texas cities, remain well below statutory and city charter caps.

Expenditure Framework: 'aa' factor assessment
The pace of spending is expected to be in line with to marginally above revenue growth as service demands continue to grow. Management has demonstrated satisfactory cost cutting ability, although carrying costs are somewhat elevated for the rating level.

Long-Term Liability Burden: 'aa' factor assessment
Debt levels are manageable, and the combined debt and pension burden is moderate as a percentage of personal income. Pension contribution amounts below required levels suggest unfunded pension liabilities will increase further without pension reform, but remain a moderate burden on resources.

Operating Performance: 'aaa' factor assessment
Spending flexibility provides exceptional gap-closing ability through a typical business cycle. Maintenance of sound reserves is expected through a normal downturn with limited deferral of non-routine spending, and economic recovery and replenishment of any spent reserves would likely be prompt.

RATING SENSITIVITIES

BUDGET MANAGEMENT: A growing population will require additional municipal services. The rating assumes management's ability to expand service levels while both addressing capital and benefit requirements and maintaining satisfactory reserves.

PENSION SUSTAINABILITY: Changes to the city's pension plan for non-uniformed and public safety employees that are expected to improve funding levels over time are currently subject to legal challenge. The sustainability of pension funding, including through increased contributions if necessary, is a significant rating factor.

CREDIT PROFILE

The city has registered solid gains recently in employment, tax base and sales tax revenues in conjunction with overall regional economic gains. Fort Worth's population continues to grow (up more than 3% annually since 2000). In addition, the city's extra-territorial jurisdiction is sizable and provides opportunity for future annexation and growth.

Management reports a number of commercial, residential and industrial projects either underway or planned in the city. The emergence from bankruptcy by AMR Corporation (parent of American Airlines), its merger with US Airways and the decision to locate the headquarters of the combined airline in Fort Worth were a boost to the local economy. AMR employs roughly 24,000 workers in the area and is the city's largest employer. The defense sector concentration in the local economy has exposed employers to periodic federal spending cutbacks; Lockheed Martin is the city's second largest employer with about 13,700 workers locally.

The city continues to add to employment totals as the regional economy expands. In March 2016 the city's unemployment rate stood at 3.8%, well below the national average of 5.1% for the month. City wealth levels generally are below the region and state; however, housing prices remain relatively low in comparison to other large cities in the state, pointing to a lower cost of living. Taxable values have registered gains in the past five years and the fiscal 2016 taxable valuation totals $49.7 billion, up 5.5% from the prior year. Management reports building permit totals continue to register solid gains.

Revenue Framework
Property and sales taxes are the dominant operating revenue sources for Forth Worth, together comprising roughly 80% of general fund revenues. Each source has exhibited solid increases following recessionary and energy sector-related declines in the 2009-2011 period. Performance historically has generally tracked overall business cycles, with the energy sector exposure injecting some degree of volatility.

While historical performance over the last 10 years shows fairly modest revenue growth (tracking inflation), Fitch notes that the past decade witnessed a confluence of recession and collapse of natural gas prices that significantly affected operating revenues for several years. The expectation is that future revenue growth will more closely track overall business trends, given that forecasts of lower natural gas prices over the intermediate- to long-term will likely limit any material impact on revenues from the natural resources sector. The positive growth prospects for the Dallas-Fort Worth region suggest continuation of recent healthy gains in economically sensitive revenues. Fort Worth sales tax collections have averaged 5% annual increases over the past five years.

Fort Worth retains a significant margin below its statutory and city charter property tax limitations, providing notable flexibility in terms of legal ability to increase operating revenues.

Expenditure Framework
The city has managed spending pressures associated with growth well over the past several years as it grappled with a limited structural imbalance between revenues and outlays. As is the case with many cities, public safety (including contractual pay hikes) is the largest general fund cost driver.

The expectation is that spending growth will largely track revenue trends over the near term. Anticipated additional revenue growth from an expanding population and area economy will fund increased service demands. Additional spending pressure may come from increased pension contributions, which have fallen short of actuarially required amounts recently; however, the dollar amounts are manageable.

Recent operating results have demonstrated a satisfactory level of expenditure flexibility, as management adjusted spending following the recent recession. Carrying costs of 22% in fiscal 2015 are slightly elevated for the rating level, but a favorable workforce environment (in terms of contractual arrangements and management control) and the city's demonstrated spending flexibility are positive offsets.

Long-Term Liability Burden
Fort Worth's governmental debt profile is comprised primarily of tax-supported debt issued for basic infrastructure improvements, and the overall burden is moderate. Capital needs appear affordable, with annual borrowings planned to complete the 2014 general obligation (GO) authorization by around 2019. The city maintains a single employer pension plan for retirees, with employer contribution rates set by council action. Contribution rates have trailed actuarial requirements moderately, suggesting an increasing pension liability absent increased contributions or additional reforms. The combined debt and pension liability is moderate at 14% of total personal income.

Other post-employment benefits (OPEB) benefits are limited to employees hired before Jan. 1, 2009, and the city has established a trust for this obligation. Assets in the trust are currently valued at roughly $64 million, or roughly 8% of the total OPEB liability.

Operating Performance
Based on the results of scenario analysis, Fitch expects that reserves will remain comfortably above levels consistent with an 'aaa' assessment level throughout a typical business cycle. The city has demonstrated an ability and willingness to reduce spending during a downturn, and also is expected to keep reserves above the policy minimum of 10% of spending.

The gap between actual pension contributions and actuarially calculated amounts has widened with recent assumption changes and reporting requirements. However, the gap remains moderate as a percentage of governmental spending (1% in fiscal 2015). Further, the city contributes annually to pay-as-you-go capital spending ($25 million to $35 million, or about 4% of general fund spending, planned for fiscal 2017-2021), which gives the city the ability to adjust to changing economic conditions. Times of economic recovery/expansion provide the city a good opportunity to replenish any depleted reserves and bolster its financial position.

Management is currently projecting a roughly $11 million general fund surplus at fiscal 2016 year-end, driven largely by expenditures coming in below budget. Sales tax receipts reportedly are closely tracking the $135 million budgeted, which represents a 7% increase from the prior year budget. Fiscal 2016 taxable values were up 5.5% to $49.7 billion, and a similar gain is anticipated for fiscal 2017.

Since 2011 the city has made a number of adjustments to civil and public safety retiree benefits, affecting primarily employees hired after July 1, 2011. These changes, including increasing the retirement age, removing overtime from the compensation base and eliminating COLAs, should improve funding levels over time.

Participants in both the police and firefighter plans have sued the city over benefit changes to existing employees. The trial judges ruled in favor of the city in both the police and fire cases, and the plaintiffs have appealed the rulings. No rulings have been made on the appeals. Fitch will continue to monitor the city's progress in its efforts to shore up pension funding levels.