Fitch Affirms Harlingen, TX's GOs and COs at 'AA-'; Outlook Stable
OREANDA-NEWS. Fitch Ratings affirms its 'AA-' rating on the following Harlingen, TX general obligation (GO) bonds and certificates of obligation (COs):
--14 million GO bonds, series 2006, 2007, 2010, and 2013;
--25.7 million COs, series 2007, 2010, 2012, and 2013.
The Rating Outlook is Stable.
The GOs and COs are payable from a direct annual ad valorem tax levied, limited to $2.50 per $100 assessed valuation, against all taxable property within the city. The COs are further payable from a limited pledge of surplus revenues of the city's Butler golf course (not to exceed $1,000).
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: The city has a stable financial history marked by slow, steady growth in revenue streams and healthy reserves, which offset concern over the city's reliance on sales tax revenues.
ECONOMIC GROWTH: Tax base and economic growth remained positive during the recession, but the region continues to suffer relatively high unemployment and low wealth levels. Proximity to Mexico and an extensive and expanding transportation network support strong international trade activity.
MODERATE DEBT LEVELS: The city's overall debt burden and total carrying costs are moderate, and near-term borrowing plans are limited. Principal amortization is rapid.
MAINTENANCE OF SOLID RESERVES: Given the city's reliance on economically sensitive sales taxes, maintenance of solid reserve levels is key to the rating.
The city of Harlingen has an estimated population of roughly 66,000. It is located in south Texas near the U.S.-Mexico border, encompassing almost 34 square miles in Cameron County.
The area economy has long been linked to the agriculture, tourism, trade, and manufacturing sectors. However, the local economy continues to diversify, aided by the city's economic development incentive programs and an extensive transportation network that includes the city-owned and operated Valley International Airport.
In recent years, the city has positioned itself as a regional healthcare hub. The Regional Academic Health Center, a branch of the University of Texas-San Antonio Health Science Center, has brought a nationally recognized institute of health science education and research to the Rio Grande Valley. Other health care facilities have opened recently, and health care is now one of the largest employment sectors in the area, along with higher education and local government.
At 6% in August 2015 unemployment levels have improved from the prior year but remain higher than state (4.4%) and the U.S. averages (4.9%). Wealth levels are well below average compared to the state but are in line with those of other border communities.
STABLE FINANCIAL OPERATIONS
The city's financial reserves have remained strong, growing to half of the city's spending in fiscal 2015. The city's fiscal 2014 results were break-even and unaudited results for fiscal 2015 point to a $1.9 million draw on fund balance due to the purchase of land for that same amount. The fiscal 2016 adopted budget is balanced without the use of reserves.
The general fund receives about 40% of its revenues from a 1.5% sales and use tax. This revenue source has shown modest, steady growth post-recession, marking only one year of minor contraction in fiscal 2010, the first in an almost 20-year period. Management budgets this revenue stream conservatively (about 2% growth per year), and reports year-to-date results for fiscal 2016 exceed last year's budget by 5.3%.
Property taxes account for approximately one-third of general fund revenues. The tax base is well diversified and has grown at a compound annual growth rate of 2.3% since fiscal 2009 to $2.9 billion in fiscal 2016. The top 10 taxpayers represent a moderate 9.1% of the total.
MANAGEABLE DEBT LEVELS WITH LIMITED DEBT ISSUANCE PLANS
Key debt ratios are moderate due in part to overlapping school district debt. The city's overall debt burden is $2,622 per capita and 5.3% of fiscal 2015 market value. Debt carrying charges of approximately $4.2 million in fiscal 2014 were equal to 8.3% of governmental spending. Principal amortization is rapid with 86% retired in 10 years.
The city has no GO debt authorization and no immediate plans to approach voters for additional authorization. Officials report that the city's capital improvement plan is being updated and may include a moderate level of financing for upcoming development projects.
Pension benefits for city employees are provided through the Texas Municipal Retirement System (TMRS), a statewide agent multiple employer plan. The city's funding position was almost 100% as of Dec. 31 2013. Additionally, the city is the administrator of the Firemen's Relief and Retirement Fund, a single-employer defined benefit pension plan. Funding status of the plan as of Dec. 31, 2013 was 64% when using a 7% rate of return assumption. Other post-employment benefits (OPEB) are funded on a pay-go basis and have a modest UAAL equal to 0.2% of market value. The city's combined carrying costs (debt service, pension, and OPEB), represented a manageable 14% of 2014 governmental spending.