OREANDA-NEWS. Fitch Ratings, City, 11 August 2016: Fitch Ratings has assigned a rating of 'AAA' to the following obligations of the town of Flower Mound, Texas:

--$13.51 million certificates of obligation (CO), series 2016.

The COs are expected to price via negotiation the week of Aug. 15, 2016 pending market conditions. Proceeds will be used to fund street improvements, park facilities, and water and sewer system improvements.

In addition, Fitch has affirmed the following ratings:

--Long-Term Issuer Default Rating (IDR) at 'AAA';

--$123.6 million in outstanding limited tax obligations consisting of GOs and certificates of obligation (COs) at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The limited tax obligations (GOs and COs) are payable from an ad valorem tax levied on all taxable property within the town, limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally secured by a nominal pledge of subordinate net revenues (limited in amount to $1,000) from the town's water and wastewater system.

KEY RATING DRIVERS

The 'AAA' IDR and limited tax obligation ratings are based on Flower Mound's exceptional financial flexibility supported by its ability to independently raise revenues, solid expenditure flexibility and strong reserves. The rating also incorporates the town's moderate long-term liability burden.

Economic Resource Base

The town of Flower Mound, population of about 70,000, is located 28 miles northwest of downtown Dallas on Grapevine Lake. The town's close proximity to the Dallas-Fort Worth (DFW) airport contributes to its developing manufacturing and industrial distribution base.

Revenue Framework: 'aaa' factor assessment

Flower Mound's revenues grew at a rate in excess of U. S. GDP over the decade ending in 2014. Current development plans and an expanding transportation network bode well for ongoing revenue growth. The town has ample independent legal ability to raise revenues.

Expenditure Framework: 'aa' factor assessment

Solid expenditure flexibility arises from Flower Mound's discretion over work force rules and compensation. The town's carrying costs are likely to remain moderate based on limited issuance plans, rapid amortization and well-funded pensions.

Long-Term Liability Burden: 'aa' factor assessment

At 11% of personal income, Flower Mound's moderate long-term liability burden incorporates sizable overlapping school district debt. Fitch anticipates the burden to remain moderate based on anticipated growth in overlapping debt commensurate with the town's population and income, as well as the town's currently low unfunded pension liability.

Operating Performance: 'aaa' factor assessment

Fitch expects the town to demonstrate financial resilience in a moderate economic downturn based on its ability to independently raise revenues, solid expenditure flexibility and its currently high level of reserves.

RATING SENSITIVITIES

Strong Fiscal Health: The rating is sensitive to shifts in fundamental credit characteristics, most notably the town's ongoing strong fiscal health and solid economic base.

CREDIT PROFILE

Flower Mound's expanding economic base and low unemployment reflect participation in the broad DFW economy, proximity to the DFW airport and the citizenry's high level of educational attainment. Top employers are represented by the local school district, medical services, manufacturing and industrial distribution, engineering repair and logistics, medical technology, city government, distribution service centers and apparel.

Revenue Framework

The town's diverse general fund revenue stream consists of property taxes (50% of total revenues), sales taxes (21%), franchise and other taxes (12%), charges for services, and fees. Other dedicated funding sources such as a 0.25%% economic development additional sales tax and a 0.25% additional sales tax for street maintenance mitigate operating and capital pressure on the general and debt service funds. The town's largely residential ad valorem tax base performed well during the recession as growth offset the recession's modest impact on the local housing market. Sales tax revenues also fared well during the economic downturn with just a single year of modest decline in fiscal 2009.

A pick-up in new commercial and industrial properties within the town's business districts over the past several years has accompanied its historically strong residential growth, contributing to 8% CAGR of the ad valorem tax base between fiscal 2013 and 2017. The town's ad valorem tax base is without concentration risk. Sales tax trends remain strong consistent with historical CAGR above that of U. S. GDP. Fitch anticipates the town's economic growth to continue based on development projects and sizable regional transportation plans currently underway.

Flower Mound's fiscal 2016 tax rate of $0.439 per $100 of TAV provides ample capacity below the statutory cap of $2.50. If a proposed tax rate results in an 8% year-over-year levy increase (based on the prior year's values), the rate increase may be subject to election if petitioned by voters.

Expenditure Framework

Comparable to similarly situated suburban municipalities, public safety accounts for almost half of Flower Mound's general fund operating budget.

The town's natural pace of spending is generally in line with revenue growth.

Flower Mound adjusts compensation within its annual budgeting process. Work rules are managed within the town's personnel and administrative processes, which are reviewed and updated on a periodic basis. The town's discretion over its labor costs provides a solid measure of expenditure flexibility. Carrying costs consume 18.5% of the town's spending and are expected to remain moderate based on a rapid 74% 10-year amortization rate and well-funded pensions.

Long-Term Liability Burden

Flower Mound's long-term liability is a moderate 11% of personal income. The town projects a decline in its debt position over the next five years based on amortization in excess of new issues. However, the town's long-term liability burden is expected to remain stable based in relation to its population and personal income given growth in the town's sizable overlapping, primarily school district, debt.

The town's pensions are provided through the Texas Municipal Retirement System, an agent multiple-employer defined benefit plan. Under GASB Statement 68, the town reports a fiscal 2015 net pension liability (NPL) of $5.1 million, with fiduciary assets covering 94.8% of total pension liabilities at the plan's 7% investment return assumption.

Operating Performance

Fitch expects Flower Mound to demonstrate financial resilience through a moderate economic downturn. The town's strong financial performance has benefited from ongoing growth in its ad valorem and sales tax bases, contributing to healthy reserves and providing the town with a high degree of financial flexibility.

Long-term planning and cost monitoring help the town to maintain a strong financial position, evidenced by healthy reserves in excess of policy targets. The town's fund balance policy targets a minimum 15% of general fund budgeted operating expenditures.