Fitch Ratings affirms the 'AA' rating on the following Ellis County, Texas' (the county) outstanding general obligation (GO) bonds:
--$5.6 million GO refunding bonds, series 2002 at 'AA';
--$45.8 million GO bonds, series 2007 at 'AA'
The Rating Outlook is Stable.
SECURITY
The bonds are payable from a limited ad valorem tax pledge of the county, not to exceed $0.80 per $100 of taxable assessed valuation (TAV).
KEY RATING DRIVERS
STABLE FINANCES: County finances benefit from sound financial management and budgeting practices resulting in the maintenance of solid reserve levels. Surplus operations are expected for fiscal 2014 and the fiscal 2015 budget is balanced with no draws on reserves.
GOOD EMPLOYMENT TRENDS BUT MIXED INCOME: County unemployment has been declining, and remains below state and national levels. Income and wealth indicators are mixed, with median household income and poverty rates comparing favorably to state and national levels and per capita income levels below average.
TAV RETURNS TO GROWTH: County TAV had been essentially flat in recent years but returned to growth in fiscal years 2014 and 2015, with continued growth expected in the near term.
HIGH OVERALL DEBT BUT MANAGEABLE COSTS: Overall county debt levels are high. These include significant, primarily school district-related, overlapping debt, reflective of capital needs from strong population growth in prior years. At the direct level, county debt service costs as a percentage of governmental spending are average and total carrying costs, including debt service, pension, and other post-employment benefits (OPEB) payments, are manageable.
RATING SENSITIVITIES
CHANGES TO CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Ellis County is located in north central Texas, immediately south of and accessible to the larger Dallas-Fort Worth metro economy and employment base. The county's 2013 population of 155,976 represents an increase of about 40% since 2000.
TREND OF STABLE FINANCES
The county's financial position remains stable, characterized by solid general fund reserves, which have been at least 21% of spending since fiscal 2002. The county generated operating surpluses in four of the last six fiscal years through fiscal 2013, assisted by conservative financial management practices and the implementation of some cost-saving measures. Recent year deficits have been modest and reserve drawdowns have been typically due in part to pay-go capital spending.
Fiscal 2013 featured an operating surplus of $1.9 million, which increased the general fund unrestricted balance to $11.2 million or 32.3% of spending, up from 27.2% in fiscal 2012. Unaudited estimates for fiscal 2014 indicate a modest surplus of $1.3 million that would increase the general fund ending balance to $12.5 million or about 33.9% of spending. The county adopted a formal fund balance policy in 2012 that targets reserves equal to 120 days of spending.
The county's fiscal 2015 budget is balanced and year-to-date performance is reportedly running in line with budgeted expectations. The fiscal 2015 total tax rate is set at .4136 per $100 of TAV. General fund spending is budgeted to grow about 5% as compared to current estimates for fiscal 2014, largely reflecting increased public safety costs associated with a new district court facility and strong inmate population growth. The fiscal 2015 budget also included cost of living salary increases. Management has implemented recent inmate-related expenditure controls, including renegotiating certain inmate services contacts for cost savings, and is examining further cost-saving options, such as alternatives to incarceration. Privatization of county jail operations, a prior consideration, is not being pursued by the county at this point.
GOOD EMPLOYMENT TRENDS; MIXED INCOME INDICATORS
Ellis County is still fairly rural but benefits from its proximity to the larger Dallas-Fort Worth economy and employment base. Employment trends have been positive and county unemployment is below average. The county unemployment rate declined to 4.3% as of November 2014 from 5.6% a year prior, and remains below average compared to state (4.6%) and national (5.5%) rates. Income and wealth indicators are mixed, with median household income and poverty rates comparing favorably to state and national levels and per capita income levels below average relative to state and national rates.
TAV RETURNS TO GROWTH
Recessionary pressures on the housing market significantly reduced development activity and lowered home values, resulting in a trend of generally flat TAV in recent years. TAV returned to growth, however, in fiscal 2014 (2.7%) with additional growth (4.4%) in fiscal 2015. The county's top 10 taxpayers made up a substantial 16.7% of TAV in fiscal 2013. Major taxpayers include a historically stable industrial base of cement and steel manufacturers, large retail distribution centers and utility plants.
The county is expecting continued TAV growth in the near term, which appears reasonable given ongoing economic development activity. This includes construction of a new Marriott Hotel, various retail and industrial expansions, and a new $70 million Triumph Aerostructures facility, with a planned second phase $65 million expansion. In addition, preliminary plans are in place for the private development of a sizable subdivision that would include more than 3,000 single and multi-family homes. The timing and impact of this development is not yet certain.
HIGH OVERALL DEBT BURDEN; MANAGEABLE CARRYING COSTS
Overall county debt ratios including overlapping debt are high at about $6,481 per capita and 7.7% of market value in fiscal 2013. High overlapping debt levels are due largely to local school district debt. Direct county debt is much more manageable, and debt service as a percentage of governmental spending, about 11.4% in fiscal 2013, is average. The county is funding capital needs on a pay-go basis and has no near-term debt issuance plans. Principal amortization is average, with about 52% of principal maturing within 10 years.
The county participates in the Texas County and District Retirement System (TCDRS), an agent multiple-employer plan, and funds 100% of its required contribution. Pension costs were about $3.7 million or 7.3% of total governmental spending in fiscal 2013. The TCDRS funding ratio as of Dec. 31, 2013 was 84.8% or 76.4% under Fitch's more conservative 7% discount rate estimate.
The county also provides OPEB to its retirees, which consist of a health insurance benefit subsidy in a single-employer plan. The county funds OPEB annually on a pay-go basis and the fiscal 2013 contribution represented about 18% of the annual OPEB cost. The OPEB unfunded actuarial accrued liability of $8.8 million as of Sept. 30, 2013, is less than 1% of fiscal 2013 market value. Overall carrying costs for the county (debt service, pension, OPEB costs) totaled a manageable 19.1% of governmental fund spending in fiscal 2013.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=977595
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