Fitch Ratings has assigned an ‘A’ rating to Eagle Pass, Texas general obligation (GO) bonds as follows:
–$6.895 million GO tax refunding bonds, series 2010.
The bonds will be sold via negotiation on Oct. 13, 2010. Proceeds will be used to refund series 2007 combination tax and limited pledge revenue certificates of obligation (COs).
In addition, Fitch affirms the following ratings:
–$460,000 GO tax refunding bonds, series 2002 at ‘A’;
–$6.4 million combination tax and limited pledge revenue COs, series 2003 at ‘A’;
–$6.6 million combination tax and limited pledge revenue COs, series 2007 at ‘A’;
–$1.9 million public property finance contractual obligations, series 2008 at ‘A’.
The Rating Outlook is Stable.
–Limited but growing tax base with positive growth prospects enhanced by sizeable state highway improvements to be completed over the near- to mid-term.
–Strong financial reserves mitigate concerns over the city’s heavy reliance on vulnerable revenue stream.
–Moderate overall debt burden with relatively large deferred maintenance capital needs somewhat offset by an above-average amortization rate.
–Typical of border regions, the area’s wealth levels are low.
–Historically low tax rates are on the rise, but remain low relative to other municipalities in the state.
KEY RATING DRIVER:
–Given the city’s dependence on sales taxes and toll bridge enterprise transfers that are particularly vulnerable to fluctuations of the Mexican economy, maintenance of solid reserves is a key credit consideration.
The bonds are secured and payable from an annual property tax levied on all taxable property within the city, limited to $2.50 per $100 assessed valuation.
Located along the U.S.-Mexico border, the city of Eagle Pass serves as the county seat of Maverick County (52,000 population). With a population of roughly 26,000, the city serves as the port of entry into Mexico at Piedras Negras and benefits substantially from tourism and trade with northern Mexico. The county’s economy is based on agriculture and mineral production. Typical of many border communities, wealth levels are very low as evidenced by per capita personal incomes equal to only 63% of state and 57% of national averages in 2008; however, this is an improvement from the 2000 levels at 44% and 41% of state and U.S., respectively. Unemployment levels are typically high due in part to the substantial presence of seasonal migrant farm workers who remain unemployed after returning from jobs in other parts of the country. Over the last decade, the unemployment rate has ranged from a low 11.6% (2008) to a high 16.2% (2002). For August 2010, the unemployment rate remained high at 13%, relative to the 8.4% and 9.5% state and national levels, respectively.
Taxable values have grown at a healthy clip but have slowed over the past two years. Growing at a compound annual average rate of slightly over 5% from fiscal years 2006 to 2010, the city’s taxable asset value (TAV) reached $1 billion in fiscal 2010. However, a modest 3% reduction is anticipated for fiscal 2011 due to revaluations. The top 10 taxpayers comprise 11% of total TAV for fiscal 2010. Accounting for 3.6% of total TAV, Fort Duncan Medical Center, an essential enterprise, remains the single largest taxpayer. Market value per capita is relatively high at $43,000 given the generally poor economic indicators. At almost $0.41 per $100 of TAV, the city’s total tax rate remains relatively low despite the fiscal 2011 rate increase. Tax collection rates are low at about 90%, but total collection rates are much higher at 98%-100%.
Financial operations are stable despite the city’s heavy reliance on the economically sensitive sales tax and toll bridge revenues that are vulnerable to the Mexican economy. For the fiscal year ended Sept. 30, 2009, the city posted a $1.2 million net surplus increasing unreserved general fund balance to $3.8 million, or 26% of spending, reaching management’s goal to maintain three months of operating expenditures in reserves. City officials anticipate adding another $1 million to reserves for fiscal 2010 and adopted a balanced budget for fiscal 2011. Given the city’s reliance on transfers from toll bridge operations and from sales taxes, solid reserves are an essential credit consideration. For fiscal 2009, the bridge transfers to the general fund comprised 33% of total revenue, followed by sales tax receipts at 24% and property taxes at 16%. Recent property tax rate hikes are expected to contribute additional diversity and stability to the city’s revenue stream.
The city’s debt burden is moderate with $758 per capita and 2.23% of TAV. With the inclusion of county and school district debt, overall debt levels rise to $1,128 per capita and 3.3% of TAV even after adjusting for over 60% of state support for school district debt. Principal payout is above average at 39% in five years and 68% in 10 years. In fiscal 2003, the city began implementation of a $20 million capital improvement plan (CIP) and levied its first debt service tax rate in about 30 years. The fiscal 2011-1017 CIP approximates another $20 million mostly for street improvements (76%) and drainage needs and is projected to be almost entirely debt funded. The fiscal 2011 debt service tax rate increased $0.02 from the prior year to $0.10 per $100 of TAV. This offering will refund the series 2007 certificates of obligations for debt service savings.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and LoanPerformance, Inc.
Applicable Criteria and Related Research:
–‘Tax-Supported Rating Criteria’, dated 16 Aug 2010.
–‘U.S. Local Government Tax-Supported Rating Criteria’, dated 8 Oct 2010.
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria