OREANDA-NEWS. Fitch Ratings has upgraded the ratings on the following Burleson, Texas (the city) obligations to 'AA' from 'AA-':

--$1.6 million general obligation (GO) bonds;

--$2.9 million combination tax and surplus revenue certificates of obligation (COs).

Additionally, Fitch upgrades the city's Long-Term Issuer Default Rating (IDR) to 'AA' from 'AA-'.

The Rating Outlook has been revised to Stable from Positive.

SECURITY

The bonds and COs are direct obligations of the city payable from ad valorem taxes limited to $2.50 per $100 of taxable assessed valuation (TAV). The COs are further payable from a pledge of surplus net revenues of the city's water and sewer system.

KEY RATING DRIVERS

The upgrade of the Long-Term IDR rating to 'AA' results primarily from positive credit trends and reflects application of Fitch's revised criteria for U. S. state and local governments, released on April 18, 2016. The rating change incorporates the city's continuing economic growth and strong operating performance as well as a more focused consideration of the impact of the local economy on revenue growth prospects under the new criteria. The rating also recognizes Burleson's sound expenditure flexibility and moderate long-term liability burden.

Economic Resource Base

Burleson's population of 45,162 has more doubled over the past 15 years, benefiting from its location adjacent to Fort Worth and situated along Interstate 35W.

Revenue Framework: 'aaa' factor assessment

Strong growth prospects are driven by Burleson's local economic growth. The city has ample ability to independently raise operating revenues.

Expenditure Framework: 'aa' factor assessment

Burleson's spending is expected to grow at the pace of its revenues. Expenditure flexibility resides in the city's control over workforce costs and is not hindered by its moderate carrying costs.

Long-Term Liability Burden: 'aa' factor assessment

Burleson's long-term liability burden, driven primarily by debt, is moderate at about 17% of estimated personal income. Fitch expects the burden to remain moderate because population and income are likely to be aligned with regional debt needs and full actuarially-based funding should limit growth in net pension liabilities.

Operating Performance: 'aaa' factor assessment

Fitch expects Burleson to demonstrate strong financial resilience during a moderate economic downturn based on its ample independent ability to raise revenues and sound expenditure flexibility supplemented by healthy reserves.

RATING SENSITIVITIES

Fundamental Credit Profile: The rating is sensitive to shifts in Burleson's fundamental credit characteristics including affordability of debt as reflected in the city's carrying costs.

CREDIT PROFILE

Burleson has participated in the regional economic expansion, benefiting from its proximity to Fort Worth and linkage to the area's transportation infrastructure. The city is home to several light industry/manufacturing firms and a well-built-out business park. Fiscal 2016 mineral values ($161 million) make up 5% of the tax base and are subject to some commodity-based volatility. However, the city's strong growth has muted this exposure to date. The city's taxable assessed valuation (TAV), in its fifth year of expansion, has realized a strong compound annual growth rate (CAGR) of 5% subsequent to a modest recessionary dip in fiscal 2011. Big box retailers, grocers, manufacturers, the local school district and the city top the list of the city's large employers.

Revenue Framework

Fiscal 2015 general fund operations are supported primarily by property tax revenues (46%) and sales tax revenues (27%). The city's growth has largely shielded revenues from volatility during recent economic cycles.

General fund revenues realized growth in excess of U. S. GDP between fiscal 2004 and 2014 on strong ad valorem tax base and sales tax growth. Reportedly flat fiscal 2016 sales tax revenues are due to the loss of a large oil and gas tax payer whose sales tax collections were offset by growth elsewhere. The city's largely retail sales tax revenues are likely to grow at a trajectory consistent with residential growth. Fitch expects ongoing development -- residential and commercial -- to drive strong general fund revenue growth through the medium term.

Burleson's fiscal 2016 tax rate of $0.74 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

Public safety accounts for over one-half of the town's general fund expenditures, which Fitch expects to grow in line with its anticipated revenue growth along with other operating expenditures.

Burleson manages its workforce costs without collective bargaining or labor agreement constraints. The city's carrying costs consume 20% of its fiscal 2015 governmental expenditures, driven primarily by debt service at 15% of spending. The potential for increased carrying costs depends on growth of the city's debt service relative to its expanding operational budget. The city's 10-year principal amortization rate is rapid at 70%. Pension and other post-employment benefit contributions are modest with a stable trajectory.

Long-Term Liability Burden

Burleson's long-term liability burden is a moderate 17% of estimated personal income. The city's $328 million long-term liability burden consists primarily of debt ($314 million), $221 million of which is overlapping. The city has $2.2 million of remaining unissued authorization which it expects to issue in fiscal 2017. Additional, near-term capital needs will be funded with equipment replacement reserves and modest additional non-voted certificates of obligation. Fitch expects Burleson's long-term liability burden to remain moderate because population and income growth are likely to be aligned with additional debt needs and full actuarially-based funding should limit growth in net pension liabilities.

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 fiscal 2015 net pension liability (NPL) of $14.8 million, with fiduciary assets covering 80% of total pension liabilities at the plan's 7% investment return assumption.

Operating Performance

Fitch expects Burleson to maintain a high level of financial flexibility through moderate economic downturns based on its ample revenue raising capacity, sound expenditure reserves and its healthy financial cushion. The city has a commitment to maintaining a large financial cushion as reflected in its 20% of spending reserve floor.

Burleson completed fiscal 2015 with an $11.4 million financial cushion, representing a high 36% of spending. Fitch expects reserves to remain sizable despite a modest $1.2 million application of fiscal 2016 reserves budgeted for capital projects.

The city historically builds its financial cushion during economic upturns and regularly attends to its maintenance, equipment and infrastructure needs.