OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating on the following City of Andrews, TX's (the city's) debt obligations:

--\$8.2 million combination tax and revenue certificates of obligations (COs), series 2015.

The bonds are scheduled for a negotiated sale the week of April 6. Proceeds will be used for constructing, improving, maintaining, and operating a relief highway route around the boundary of the city.

The Rating Outlook is Stable.

SECURITY
The COs are payable from an annual property tax levy limited to \$2.50 per \$100 taxable assessed valuation (TAV) and additionally from net revenues of the city's water, sewer and electric utility system (not to exceed \$1,000).

KEY RATING DRIVERS

SALES TAX RELIANCE: Credit concerns over the city's reliance on economically sensitive sales tax receipts for operations are partially offset by its large financial reserves and conservative budgeting. Additionally, a low property tax rate provides flexibility in the event the city needs to adjust its revenue composition in the future.

NARROW LOCAL ECONOMY: The primarily residential tax base has seen robust growth due to its location near the Permian Basin, which holds much of the nation's proven, accessible oil and natural gas reserves. Industry concentration with the largest employers and taxpayers in oil and gas is a credit risk, but recent diversification efforts somewhat offset this concern.

LOW DEBT BURDEN: The city's preference to cash-fund capital needs has kept debt levels low. Limited future debt plans and minimal retiree obligations should keep debt metrics affordable going forward.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the city's robust reserves which mitigate concerns over reliance on inherently volatile sales tax revenues.

CREDIT PROFILE
Andrews encompasses five square miles in far-west Texas in the Permian Basin, one of the largest mineral reserves in the U.S., about 45 miles northwest of Midland and Odessa. The city serves as the seat of Andrews County and has a population of nearly 13,000.

SMALL, LIMITED ECONOMY
The local economy is narrow, focused on oil/gas exploration, associated industries, radioactive waste disposal, and agribusiness. County economic indicators and wealth levels are better than state and national averages, but remain vulnerable to cyclical downturns. The county's unemployment rate has declined to a historical low of 2.2% as of December 2014, after rising sharply in 2009 to 7%; it remains well below the respective unemployment rates of 4.1% and 5.4% for the state and nation for the same period.

Drilling activity in the area increased significantly in recent months due to the discovery of layered Permian Basin shale plays made accessible with horizontal drilling technology. A period of sufficiently high oil prices made extraction economical, but the recent slump in oil prices presents downside risk to exploration activity and the various related businesses that operate in the local economy.

GROWING RESIDENTIAL TAX BASE

The city's mostly residential tax base showed resiliency post-recession with 2010 marking the only year of modest contraction, at 1%. In the past five years TAV has grown a cumulative 57%, from \$400 million to almost \$650 million. The top 10 taxpayers comprised a moderate 10.7% of fiscal 2015 TAV, and seven of the top 10 are engaged in the oil and gas industry. Offsetting this concern is the large residential component of the tax base (2/3 of fiscal 2015 TAV), stable home valuations, and prospects for annexations. Mineral values make up a small 1.3% of fiscal 2015 TAV.

SOUND FINANCES WITH RELIANCE ON SALES TAX REVENUE

Sales tax receipts provide about one-half of the city's operating revenues, followed by property taxes and franchise taxes at less than 10% each. Sales tax receipts have quadrupled in the last 10 years, from \$1 million in 2005 to \$4.1 million in 2014. Sales tax receipts usually outperform projections, as management historically budgets this revenue stream conservatively.

The city's finances are characterized by positive operating results, high reserve levels, and conservative budgeting. The budget has increased significantly in recent years with the climb in sales tax receipts, and the city has prudently used excess revenues for one-time capital spending, including a new fire house and various parks and public works projects. Audited fiscal 2014 ended with a \$1 million surplus, bringing unrestricted reserves to a healthy \$15.5 million, or almost 130% of spending.

Management budgeted fiscal 2015 sales tax at 95% of 2014 projected levels and kept the operations tax rate flat at \$0.189 per \$100 TAV for the seventh consecutive year. Year-to-date results point to an \$800,000 positive variance with the budget, driven primarily by positive sales tax performance. The city reports that \$4 million in general fund reserves will be used in conjunction with bond proceeds for the repair of a relief highway around the perimeter of the city. At current fund balance levels, a drawdown of that magnitude would not pressure the city's finances and reserves would remain compliant with the city's informal policy of maintaining 105% of spending in reserves.

MANAGEABLE DEBT, PENSION BURDENS

Overall debt is moderate at 3.6% of market value and \$1,929 per capita. Prior to this issuance, debt was issued in 2012 for the aforementioned relief highway after voters adopted a 1/4% sales tax to finance the project. The relief highway is a 13.1 mile route that opened in October 2013 for commercial vehicle use, and the series 2015 bonds will repair and enhance the current route. With this issuance, the pace of tax-supported amortization will decelerate to a slow 25% in 10 years, and the city does not have further tax-supported debt plans.

Andrews maintains an agent multiple-employer retirement plan administered through the Texas Municipal Retirement System (TMRS) for civil employees. The city's portion is adequately funded at 82% as of Dec. 31, 2013, based on the TMRS investment rate assumption of 7%. Additionally, the city participates in the Texas Emergency Services Retirement System (TESRS), a cost-sharing multiple employer pension system administered by the state that is adequately funded at 76% using the plan's 7% investment rate of return. The city does not offer other post-employment benefits. Carrying costs, including debt service and pension contributions, constituted a low 9.6% of fiscal 2014 governmental spending and are expected to remain level over the near term.