OREANDA-NEWS. Fitch Ratings has affirmed the following ratings of Johnson County, Texas, at 'AA+':

--$20.6 million certificates of obligation (COs), taxable series 2015;

--$8 million general obligation (GO) refunding bonds, series 2007;

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

The Rating Outlook is Stable.

SECURITY

The GO bonds and COs are payable from an ad valorem tax levy limited to $0.80 per $100 of taxable assessed valuation (TAV).

KEY RATING DRIVERS

The 'AA+' IDR and limited tax ratings are based on ample financial flexibility and conservative budget practices, which Fitch expects will support the county's strong financial position throughout a typical economic cycle. Johnson County's long-term liability burden is likely to remain in the moderate range due to significant overlapping debt.

Economic Resource Base

Johnson County is located directly south of Fort Worth and spans 740 square miles, with an estimated population over 160,000. The city of Cleburne is the county seat and principal commercial center. Residents benefit from access to the broad and diverse employment base of the Dallas-Fort Worth (DFW) metropolitan statistical area (MSA). The unemployment and poverty rates are below average.

Revenue Framework: 'aaa' factor assessment

General fund revenues are expected to continue a strong growth trajectory due to ongoing economic expansion and diversification. The county's independent legal ability to increase its property tax rate provides ample revenue flexibility.

Expenditure Framework: 'aa' factor assessment

Solid expenditure flexibility is derived from low carrying costs and strong control over workforce spending; the county has demonstrated its ability to curtail spending during times of economic decline. Fitch expects expenditure growth to remain in line with, to slightly above, revenue gains.

Long-Term Liability Burden: 'aa' factor assessment

Johnson County's moderate liability burden is driven largely by overlapping debt. The county consistently contributes to pensions at actuarially determined levels and the net pension liability is modest.

Operating Performance: 'aaa' factor assessment

Fitch expects the county to maintain a high level of financial flexibility throughout the economic cycle, given its solid levels of revenue and expenditure flexibility and its substantial operating reserves.

RATING SENSITIVITIES

Reduced Economic Concentration: A more diversified local economy reduces the county's exposure to energy industry fluctuations, suggesting future economic vulnerability will be to general business cycles.

CREDIT PROFILE

The Barnett Shale is one of the largest natural gas fields in the U. S., over which most of the county lies. A substantial 20% cumulative TAV decline in fiscal years 2011-2014 was attributable to weakness in mineral values, which made up 25% of fiscal 2010 TAV but fell to 10% of fiscal 2016 TAV due to decreased drilling activity and lower natural gas prices. This trend reversed with modest gains of 3% in fiscals 2015 and 2016.

Several consecutive years of low gas prices have reduced the top taxpayers' share of the tax base, softening energy industry concentration as a credit concern. The top 10 taxpayers comprised 13.6% of fiscal 2016 TAV, down from 26.1% of TAV in fiscal 2010; eight of the top 10 still are directly engaged in the oil and gas industry.

Revenue Framework

Property taxes account for the bulk of general fund revenues. Despite the recent energy-related declines, TAV grew at an average annual rate of 6.9% from fiscal 2004 to fiscal 2014--well above the growth rate of U. S. GDP. Fitch expects planned residential construction and accompanying commercial activity, due partly to enhanced accessibility to the MSA via a new regional tollway, to produce moderate TAV growth over the medium term.

Fitch expects the natural pace of revenue growth to continue at or above the pace of the U. S. economy, given ongoing and expected development activity that will further diversify the tax base.

Johnson County's tax rate for operations and debt service ($0.41 in fiscal 2016) is well below the statutory cap of $0.80 per $100 of TAV, providing the county with ample revenue-raising ability. If a proposed tax rate results in an 8% year-over-year levy increase (based on prior year's values), the rate increase may be subject to election if petitioned by voters.

Expenditure Framework

Public safety accounts for just less than 60% of general fund spending, and it is projected to grow at a manageable pace given the contractual agreement for jail operations that limits the county's exposure to fluctuations in maintenance costs. Increases in the number of federal prisoners housed by the county (around 30% of jail population) are accompanied by additional revenues to offset increased operational costs.

The county's trend of moderate population growth is likely to produce spending growth in line with, to slightly above, revenue growth in the absence of policy action.

Johnson County's fixed cost burden is low, with carrying costs for debt, pension, and other post-employment benefits equaling 7.7% of fiscal 2015 governmental fund spending. Expenditure flexibility is also aided by management's high level of control over workforce spending, as the county has no collective bargaining agreements and pay raises for all employee classes are determined annually during the budget process.

Long-Term Liability Burden

The long-term liability burden, which includes direct and overlapping debt and the county's net pension liability, is moderate at about 13% of personal income. Although direct debt plans are modest and the county's outstanding debt amortizes fairly rapidly, Fitch expects the burden to remain in the moderate range due to the large proportion of overlapping city and school district debt.

County employees participate in an agent multiple-employer defined benefit pension plan administered by the Texas County and District Retirement System. The county consistently contributes to pensions at the actuarially determined level and the net pension liability is modest at $15 million (0.2% of personal income), using Fitch's estimated 7% rate of return.

Operating Performance

The three-year scenario revenue estimate generated by Fitch's analytical sensitivity tool (FAST) depicts low revenue sensitivity to economic shifts and maintenance of operating reserves well above the level needed for a 'aaa' financial resilience assessment. The unrestricted general fund balance ending fiscal 2015 was a solid 40% of spending and transfers out. Johnson County has historically raised its property tax rate to counter economic downturns, and Fitch expects that the county will continue to employ this flexibility and its strong fiscal cushion to maintain a solid financial position throughout the economic cycle.

The general fund outperformed conservative budget assumptions for fiscal 2015, ending the year with a moderate surplus of $3 million rather than the modest deficit budgeted. The fiscal 2016 budget reflects the first year in a three-year salary adjustment, and management projects a modest operating surplus at year-end based on strong property tax collections in early 2016. Fitch expects that the county's conservative budget practices will contribute to structural balance over the near - to medium-term.