OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following limited tax general obligation (GO) bonds of Colleyville, Texas:

--$6.1 million GO refunding bonds, series 2016.

The bonds are expected to price via competition July 19. Proceeds will be used to refund a portion of the city's outstanding obligations for debt service savings.

Fitch has also affirmed the following ratings at 'AAA':

--$4.6 million in outstanding GO bonds, series 2007 and 2011;

--$2.5 million combination tax and tax increment refunding bonds (TIF bonds), series 2011;

--the city's Issuer Default Rating (IDR).

The Rating Outlook is Stable.

SECURITY

The GO and TIF bonds are payable from an ad valorem tax levied against all taxable property within the city, limited to $2.50 per $100 of taxable assessed valuation (TAV). The TIF bonds are additionally payable from certain tax increment revenues of the city.

KEY RATING DRIVERS

The 'AAA' IDR and GO ratings reflect Fitch's expectation that Colleyville will maintain very healthy financial flexibility throughout economic cycles. The city's strong financial profile reflects a wealthy revenue base with strong growth prospects and a demonstrated ability to reduce expenditures during economic downturns. Fitch expects long-term liabilities to remain modest based on limited capital needs and well-funded employee benefits.

Economic Resource Base

Colleyville is an upper income community located in the Dallas-Fort Worth metropolitan statistical area, approximately 11 miles northeast of Fort Worth. The city's tax base of roughly $4 billion is primarily residential, though retail and commercial development help to diversify the city's revenue stream and tax base.

Revenue Framework: 'aaa' factor assessment

The city maintains significant independent legal ability to raise operating revenues. General fund revenues have historically increased faster than both inflation and national GDP; long-term growth is expected to slow somewhat but remain strong as the city nears full build-out.

Expenditure Framework: 'aaa' factor assessment

The city's pace of spending is expected to be in line with revenue growth. Carrying costs for debt service and retiree benefits are moderately low despite rapid amortization, supporting the city's solid control over spending.

Long-Term Liability Burden: 'aaa' factor assessment

Long-term liabilities are low at about 4% of personal income, with much of the burden due to overlapping school district debt.

Operating Performance: 'aaa' factor assessment

Colleyville has exceptionally strong gap-closing capacity, with superior control over revenues and spending and a high reserve cushion. These factors leave the city well positioned to address cyclical downturns.

RATING SENSITIVITIES

Financial Management: The rating is sensitive to the maintenance of continued sound financial management practices and fundamental financial flexibility.

CREDIT PROFILE

TAV grew at a solid pace over the past decade, with only a modest decline in fiscal 2011. Management estimates population at over 90% of build-out, though the city continues to focus on promoting economic development to further diversify its tax base. Socioeconomic metrics for this affluent community far surpass state and national averages.

Revenue Framework

The revenue base is dominated by property taxes at over 50% of general fund revenues, and during the past decade operating revenues declined in just one year by roughly 1%. The total property tax rate is comparable to surrounding communities and has remained essentially level since fiscal 2008.

Colleyville's general fund revenues grew at an average annual rate of 5% from fiscals 2004 to 2014, outpacing both U. S. GDP and inflation. The city's five-year forecast projects moderate but steady assessed valuation growth due to projects underway. Sales tax revenues, the city's second largest revenue source, at about 15%, are expected to slow temporarily during a highway reconstruction project, but longer term prospects are solid.

The city's property tax rate ($0.36 per $100 of TAV for fiscal 2016) is subject to a $2.50 limitation imposed by state constitution. The city charter is more restrictive; any tax rate increase cannot raise ad valorem revenues from existing properties by more than 7% from the year prior.

Expenditure Framework

The city's largest spending area is public safety, which makes up about 45% of general fund spending. Growth in that area has trended in line with overall expenditure growth.

The pace of operational spending is likely to remain generally in line with revenue growth. Fitch does not anticipate pressure on service levels given the city's maturity.

The city has no collective bargaining agreements, and therefore exercises a large degree of control over headcount, wages, and benefits. Spending flexibility was evident in prior years when expenditures were cut in response to economic downturns. Carrying costs are low, representing 9.5% of fiscal 2015 governmental spending, even though debt amortization is rapid.

Long-Term Liability Burden

The city's long-term liability burden is low, consisting mostly of overlapping school district debt. Colleyville has no plans for near-term direct debt issuance, and Fitch expects the liability burden to remain modest given the area's expected capital needs and the city's well-funded pensions. Pension benefits are provided through the Texas Municipal Retirement System, a statewide agent multiple-employer plan.

Operating Performance

Fitch expects the city to maintain reserves throughout the economic cycle at levels well above what is required for a 'aaa' financial resilience assessment. This reflects the city's high degree of inherent budget flexibility in the form of revenue and spending control and the comparatively low sensitivity of revenues to economic shifts. Despite a recent series of draws on general fund balance for capital outlay, Colleyville's reserves equaled a high 38% of spending at fiscal 2015 year-end. The city's five-year forecast projects fund balance in excess of 100 days of spending under reasonable assumptions, above the city's 25% of spending reserve policy.

Management expects to maintain operational balance in fiscals 2016-2018 before annual outlay of up to $1 million for street maintenance (4% of fiscal 2015 spending). Fitch expects the city to reduce general fund spending in fiscal 2017 to offset the planned elimination of an operating transfer from the utility fund.