OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following Granbury, Texas bonds:

--$6.1 million general obligation (GO) refunding bonds, series 2016.

The bonds are scheduled for competitive sale the week of July 4th and proceeds will be used to refund outstanding obligations for debt service savings.

.

Fitch has also affirmed the city's 'AA' Long-Term Issuer Default Rating (IDR) and the 'AA' rating on the following outstanding obligations (pre-refunding):

--$19.4 million combination tax and revenue certificates of obligation (COs), series 2007, 2015, and 2016A;

--$26.7 million GO refunding bonds, series 2008, 2011, 2013, and 2014.

The Rating Outlook is Stable.

SECURITY

The GOs and COs are payable from a property tax limited to $2.50 per $100 of taxable value. The COs are additionally secured by a de minimis pledge of net utility system revenues, not to exceed $1,000.

KEY RATING DRIVERS

The 'AA' rating reflects the city's above-average revenue growth prospects, strong gap-closing capacity, and moderate fixed costs. Fitch expects that long-term liabilities will continue to be a moderate burden on resources due to the city's modest debt issuance plans.

Economic Resource Base

Granbury is located 25 miles southwest of Fort Worth with an estimated 2015 population of 9,386, up about 1,500 people since the 2010 census. Granbury serves as the county seat and retail hub for Hood County and the surrounding area. Lake Granbury runs through the historic downtown and attracts visitors from outside the region, contributing to the city's sales tax base.

Revenue Framework: 'aaa' factor assessment

The city of Granbury has realized strong revenue growth, a trend that Fitch expects to continue, and maintains sizable ad valorem tax rate capacity.

Expenditure Framework: 'aa' factor assessment

The pace of spending is expected to be generally in line with revenue growth. Fixed carrying costs for debt and retiree benefits are moderate and are not expected to shift materially due to modest tax-supported borrowing plans in relation to the city's budget.

Long-Term Liability Burden: 'aa' factor assessment

Debt levels are moderate and are expected to remain a reasonable burden on resources given limited future borrowing plans and modest unfunded pension liabilities.

Operating Performance: 'aaa' factor assessment

Revenue and spending flexibility, in conjunction with well-funded reserves, provide exceptional gap-closing ability through a typical economic cycle. A normal downturn is not expected to impair the city's overall financial flexibility.

RATING SENSITIVITIES

Long-Term Liability Burden: The rating is sensitive to debt issuances beyond current plans.

CREDIT PROFILE

Proximity to the Dallas/Fort Worth metroplex, land affordability and lake access support a growing commuter and retiree population in Granbury. The city's taxable assessed value (TAV) has grown healthily after some very modest post-recession contraction. Recently completed transportation projects including Northeast Loop 567 and the upcoming airport expansion bode well for the city's future growth prospects.

Revenue Framework

The revenue base is dominated by a voter-approved local sales tax that exceeds 50% of general fund revenues, followed by property taxes (about 15%) and franchise taxes (13%).

The compound annual growth rate (CAGR) of city revenues was 6.2%, higher than the 3.5% growth in U. S. GDP over the 10 years through 2014, driven by steady, incremental increases in both sales and property tax collections with minimal recessionary contraction. Fitch expects a growing retail base and moderate TAV growth to yield continued strong revenue growth without increases in tax rates or other revenue enhancements.

Statutory limitations on sales tax rates do not allow for any rate increases. However, the city has ample room to raise property tax revenue, as the current tax rate of $0.3976 per $100 TAV is well under the limit of $2.50 per $100.

Expenditure Framework

The city's largest spending area is public safety which makes up slightly more than one-third of general fund spending, and has trended in line with general fund expenditure growth. Additionally, the city has full control over headcount, wages and benefits, providing management flexibility in this main expenditure area.

Strong revenue growth and moderate increases in the cost of services provided should lead the pace of spending growth to be more or less aligned with revenues over time.

The city's adequate flexibility to control main expenditure items is evidenced by carrying costs for debt service, pension and other post-employment benefits equaling 22% of fiscal 2015 governmental expenditures. Fitch expects modest tax-supported debt plans will maintain carrying costs at current levels for the mid-term.

Long-Term Liability Burden

The city's total long-term liability burden (overall debt plus the unfunded pension liability) is estimated by Fitch at a moderate 19.6% of personal income. Fitch expects liabilities to remain consistent with an 'aa' assessment because population and income growth are likely to be aligned with additional debt needs and modest unfunded pension liabilities. In addition to the approximately $32 million in currently outstanding tax-supported debt, officials anticipate issuing $6 million in COs to fund construction of a new police station within the next five years. Other capital needs fall under the purview of the water-sewer utility and will likely be self-supporting in nature.

The city participates in the Texas Municipal Retirement System (TMRS), an agent multiple-employer defined benefit plan, and the Texas Emergency Services Retirement System (TESRS), a cost-sharing multiple employer pension plan.

Under GASB Statement 68, the city reports a fiscal 2015 TMRS net pension liability (NPL) of $6.2 million, with fiduciary assets covering 82% of total pension liabilities at the plan's 7% investment return assumption based on a Dec. 31, 2014 valuation date. The city reports a fiscal 2015 TESRS NPL of $203,522 with fiduciary assets covering 77% of total pension liabilities at a 7% return assumption (adjusted by Fitch as a substitute for the plan rate of 7.75%). The TESRS valuation date is Aug. 31, 2014. The NPL of both plans represents less than 2% of personal income.

Operating Performance

The city has maintained robust reserve levels and continued to do so during the most recent economic recession. The city is expected to manage through economic downturns while preserving a high level of fundamental financial flexibility.

Historically, the city has practiced conservative budgeting and has implemented cost savings initiatives when necessary. Fitch believes that the city will continue these financial practices, inclusive of sales tax revenues that are typically budgeted 3% over the prior year's budget despite actual performance that has been significantly stronger.

The city's fiscal 2015 unrestricted reserves remained high at $4.1 million or 27.8% of spending, having added roughly $800,000 to fund balance at year-end. Infrequent draws on general fund balance are for planned one-time capital projects. The city projects similar results for fiscal 2016 with sales tax revenue up 7.2% compared to the prior year (including June) and expenditures coming in below budget. The city has a fund balance policy of maintaining 25% of budgeted expenditures after netting out interfund transfers and charges.