OREANDA-NEWS. Fitch Ratings has assigned a 'AA+' rating to the following city of Mansfield, Texas obligations:

--$2.9 million City of Mansfield combination tax and revenue certificates of obligation (COs), taxable series 2016A;

--$8.39 million Mansfield Park Facilities Development Corporation (MPFDC) sales tax revenue bonds, taxable new series 2016A.

The COs and sales tax revenues will be scheduled for sale within the next 90 days subject to market conditions. Proceeds will be used to fund a public recreational ice skating facility.

In addition, Fitch takes the following rating actions:

--$114.79 million GOs and COs affirmed at 'AA+';

--$4.3 million MPFDC sales tax revenue bonds, series 2006, 2007, 2007A, and 2012 affirmed at 'AA+';

--$21.7 million MPFDC sales tax revenue bonds, new series 2016 and taxable new series 2016 upgraded to 'AA+' from 'AA-';

--$2.7 million Mansfield Economic Development Corporation (MEDC) sales tax revenue bonds, series 2012 affirmed at 'AA+';

--$7.6 million MEDC sales tax revenue bonds, new series 2015 and taxable new series 2015 upgraded to 'AA+' from 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds and COs are payable from a limited ad valorem tax levied against all taxable property in the city; the COs are also payable from a pledge of net revenues of the city's water and wastewater system, not to exceed $1,000.

The MPFDC bonds are payable from a lien on and pledge of a 0.5% sales and use tax levied within the city for the benefit of the MPFDC. The outstanding MPFDC bonds (series 2006, 2007, 2007A, and 2012) have a first lien on the revenues, and this current issue, series 2016A, as well as outstanding new series 2016 and taxable new series 2016 bonds have a subordinate lien.

The MEDC bonds are payable from a lien on and pledge of a separate 0.5% sales and use tax levied within the city for the benefit of MEDC. MEDC series 2012 bonds have a first lien on the revenues, and the outstanding new series and taxable new series 2015 bonds have a subordinate lien.

KEY RATING DRIVERS

The 'AA+' Issuer Default Rating (IDR) and GO ratings are based on Mansfield's strong operating performance, enabled by solid revenue raising capacity and expenditure flexibility, supplemented by a healthy financial cushion. The assessment also reflects the city's moderate long-term liability burden.

Sales Tax Bonds: The assignment of an 'AA+' to the MPFDC subordinate obligations, series 2016 and the rating upgrade of the outstanding MPFDC and MEDC subordinate lien sales tax bonds to 'AA+' from 'AA-' reflects application of Fitch's revised criteria for U. S. state and local government credits, which was released on April 18. Under the new criteria, Fitch considers debt service coverage in light of the sensitivity of the dedicated revenue stream to downturns. The additional bonds test minimum coverage level provides ample cushion to absorb a downturn in expected revenues in a moderate recession. The affirmation of the MPFDC and MEDC senior lien at 'AA+' also reflects closed liens. The sales tax ratings are limited by the city of Mansfield's 'AA+' IDR.

Economic Resource Base

Mansfield is located in the southeastern portion of Tarrant County and is directly connected to nearby Dallas and Fort Worth, the DFW International Airport, and surrounding communities by a robust and expanding transportation network. The city's population of 65,984 is more than double that of the 2000 census. A significant amount of developable land remains within the city's 36.69 square miles.

Revenue Framework: 'aaa' factor assessment

Rapid revenue growth mirrors expansion of the city's ad valorem and sales tax base over the past decade. Mansfield has a strong ability to independently raise revenues based on ample latitude to adjust its ad valorem property tax rate.

Expenditure Framework: 'aa' factor assessment

The city maintains control over compensation within its planning and budgeting processes, contributing to solid expenditure flexibility. Carrying costs, 19.4% of spending, are on the high side of moderate. Fitch expects carrying costs to remain moderate based on projected alignment between debt service, pension and other post-employment benefit (OPEB) contributions with overall spending.

Long-Term Liability Burden: 'aa' factor assessment

Mansfield's long-term liability burden is 15.3% of personal income. The long-term liability burden is likely to remain moderate as the city's population and income grow in tandem with regional debt needs. The city's net pension liability is modest.

Operating Performance: 'aaa' factor assessment

Fitch expects the city to demonstrate strong financial resilience in a moderate economic downturn based on its ample revenue raising capacity, solid expenditure flexibility, and healthy financial cushion,.

RATING SENSITIVITIES

Expenditure Management: The GO and IDR ratings are sensitive to maintenance of strong financial health including the affordability of debt and pension obligations as reflected in the city's carrying costs.

Sound Coverage Cushion: The sales tax revenue bond ratings are sensitive to maintenance of a sound coverage cushion consistent with the current rating level.

CREDIT PROFILE

Mansfield has enabled growth by providing economic development and infrastructure assistance, a well-developed transportation network and by virtue of its significant availability of developable land. The city's local economy is diversified across manufacturing, health and medical services, utility services, distribution, retail, property management, and leisure services. The city's five industrial parks are home to a reported 115 industries. The city's large employers include Mouser Electronics, Methodist Mansfield Medical Center, SJ Louis Construction of TX, Wal-Mart Super Center and Klein Tools. Above-average education attainment contributes to the city's strong employment trends.

A notable medical and health services presence is evidenced by Methodist Hospital's $300 million capital investment. The hospital system reportedly has plans for future expansion on a 22-acre site. Hospital Corporation of America and Texas Health Resources also are reportedly slated for future hospital development totaling $227 million.

Revenue Framework

Mansfield's general fund operating revenues are provided primarily by ad valorem property taxes (50%) and sales taxes (21%). The city's revenues have fared well through recent economic cycles, supported by the city's rapid expansion.

Mansfield's revenues grew by a compound annual growth rate (CAGR) of 7% over the 10 years from 2004-2014, far exceeding the rate of U. S. GDP growth. The city's strategy to focus on expansion of its commercial and industrial sectors, as well as health services and entertainment venues over the past decade contributed to an expanding tax base that buffered revenues from the regionally flat housing values associated with the most recent economic downturn. Fiscal 2016 taxable assessed valuation (TAV) has grown a solid 4.7% on average over the past five years reflecting property appreciation and new development. Fitch anticipates ongoing growth based on extensive commercial and industrial expansion plans underway.

Mansfield's fiscal 2016 ad valorem tax rate of $0.71 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

As is typical city governments in Texas, public safety accounts for the majority of operating costs, 59% of the city's fiscal 2015 general fund expenditures.

Fitch expects the city's natural pace of spending to be generally in line with revenue growth.

Mansfield maintains solid expenditure flexibility. This is accomplished through a disciplined budgeting and control function through which the city manages compensation and benefits. The city does not participate in collective bargaining or meet and confer processes. The expectation for carrying costs to remain moderate is based on reasonable prospects for growth in overall spending in line with increases in the city's debt service, pension, and OPEB contributions. Principal amortization is about average at 61% in 10 years.

Long-Term Liability Burden

Mansfield's long-term liability ($554 million) is moderate at 15.3% of personal income. Fitch expects long-term liabilities to increase, but remain moderate based on anticipated growth in population and income to support regional debt needs and the city's modest unfunded pension obligations. The city's strategic plan includes about $135 million for general fund improvements over the next 10 years (2017-2026), somewhat above principal amortization over the same period. The current series 2016A MPFDC sales tax revenue bond and Mansfield CO issues will fund a public recreational ice skating facility which will be leased to the Dallas Stars professional ice hockey team.

The city's pensions are provided through the Texas Municipal Retirement System, an agent multiple-employer defined benefit plan. Under GASB Statement 68, the city reports a city-wide fiscal 2015 net pension liability (NPL) of $14.8 million, with fiduciary assets covering 87.9% of total pension liabilities at the plan's 7% investment return assumption.

Operating Performance

Fitch expects Mansfield to demonstrate strong financial resilience during a moderate economic downturn based on its strong independent revenue raising capacity, solid expenditure controls, and healthy reserve position.

The city typically outperforms its conservative budget and maintains ample reserves in compliance with its 25% policy target. The city's fiscal 2015 unrestricted reserves of $12 million represent 26% of spending and the city anticipates a similar financial cushion in the near term supported by strong revenue performance.

Sales Tax Revenue Bond Analysis

The MPFDC is a 4B nonprofit corporation created in 1992 following the passage of a 1/2 of 1% sales tax; the MEDC is a 4A corporation that was formed in 1997 with the passage of a separate 1/2 of 1% sales tax. The MPFDC has focused on various parks and recreation projects since its creation, while the MEDC has helped attract business to the city through location assistance and infrastructure improvements. In addition to sales tax revenues, both corporations receive gas royalty monies that are applied to their respective mission objectives.

Excise tax revenue collections reflect a very strong 8.8% CAGR over the decade from 2004-2014 and growth prospects remain strong. Legal provisions provide adequate bondholder protections. These include an additional bonds test of 1.35x maximum annual debt service (MADS) using an historical test for bonds outstanding plus bonds to be issued. The city anticipates a MEDC issuance in its immediate planning horizon.

To evaluate the sensitivity of the dedicated revenue stream to cyclical decline, Fitch considers both revenue sensitivity results (using a 1% decline in national GDP scenario) and the largest decline in revenues over the period covered by the revenue sensitivity analysis. Given its rapid growth trajectory, the city has not experienced a year-over-year sales tax revenue decline in the 15-year pledged revenue history that Fitch analyzes. As such, Fitch's analytical sensitivity tool (FAST) generates a default 1% scenario decline in MPFDC and MEDC pledged revenues based on Fitch's criteria guidance because actual revenue performance would suggest 3.4% growth in pledged revenues in a moderate national recession. Fitch takes into account that there is economic sensitivity inherent in the revenue stream.

Assuming issuance up to the 1.35x ABT for both MPFDC and MEDC, below actual current coverage levels, debt service would be covered even with a 26% drop from fiscal 2015 revenues.

Fiscal 2015 pledged revenues of $4.8 million cover MPFDC all-in MADS (2020) by 1.76x and senior MADs (2018) by a stronger 3.74x. The pledged revenues cover MEDC all-in MADS (2018) at 4.02x and senior MEDC MADS (2026) by a very strong 22.2x. The senior issues benefit from a closed lien.

Issuing Entity Exposure

The special tax bond ratings are limited by the city of Mansfield's 'AA+' IDR as Fitch does not believe that the security insulates the bonds from the general credit of the issuer. Fitch does not view the pledged excise tax revenues as special revenues under section 902(2)(B) of the bankruptcy code, which defines 'special excise taxes imposed on particular activities or transactions' as special revenues.