OREANDA-NEWS. Fitch Ratings has affirmed Hood County, Texas' (the county) outstanding limited tax bonds and notes as follows:

--\$19.2 million limited tax bonds at 'AA';
--\$5.5 million tax notes at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds and notes debt service payments are from a limited ad valorem tax pledge against all property within the county, not to exceed \$.80 per \$100 of taxable assessed value (TAV). The current property tax rate is 39 cents, including 5 cents for debt service.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The county demonstrates sound financial management through consistently positive financial performance, robust fund balance levels and conservative budgeting.

ECONOMIC EXPANSION: Population and employment growth due to the Fort Worth metro area expansion continue despite contraction in the oil & gas sector. The tax base has stabilized following valuation declines related in part to lower gas prices.

FAVORABLE LONG-TERM LIABILITIES PROFILE: A well-funded pension, absence of other post-employment benefits (OPEB), rapid amortization and limited capital needs complement the county's moderate debt ratios.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices regarding structural balance, reserve levels and debt policies. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE
Hood County is located about 40 miles southwest of Fort Worth with a population of approximately 53,000. The county's population grew by almost 30% since 2000 as proximity to the Fort Worth metro area and Lake Granbury attracted commuters and retirees. Underlying a portion of the county, Barnett Shale natural gas reserves also contributed to the growth. The largest private sector employers include a medical center, supermarkets and energy-related companies.

STABLE TAX BASE
Following a decade of rapid tax base expansion due to population growth and favorable energy prices, TAV dropped slightly during the recession as a result of a decline in natural gas prices combined with softening home values. As growth resumed in non-energy sectors, TAV has since stabilized with small year-over-year fluctuations. Fiscal 2015 AV is on par with the fiscal 2011 peak. Oil & gas now accounts for 7% of total AV, compared with over 10% in 2010. Top taxpayers are still dominated by the energy sector, making up four out of the top 10, or 5.3% of AV. Together with other utility and industrial companies, the top 10 account for 12.9% of total AV, indicating some degree of concentration in the tax base. Nevertheless, Fitch expects further near-term tax base stabilization, led by a recovering housing market (47% of total AV is residential).

EMPLOYMENT GROWTH, AVERAGE INCOMES
The county's unemployment rate has been consistently low and is trending downward, At 3.8% as of September 2014, it compared favorably with 5% and 5.7% of state and national averages, respectively. Employment has been growing at a healthy pace of 4.2% annually on average between 2010 and 2014, faster than the state (2.2%) and the nation (1.2%). The county's medium household income is average, at 106% and 104% of the respective state and national levels.

STABLE REVENUES, CONSERVATIVE FINANCIAL MANAGEMENT
Property tax revenue, the leading general fund source at approximately 65%, lends budget stability. The county has good capacity to adjust the property tax rate to offset AV fluctuations. The general fund received 28 cents per \$100 of TAV in property taxes as of fiscal 2014 compared with 23 cents in fiscal 2010.

Following volatility due to oil & gas activity, sales tax revenue (15% of general fund revenue) has recently been on a steady growth path. Together with increasing property tax revenues and license & permits revenues, total fiscal 2014 and 2015 revenues are expected to grow by 8% and 9%, respectively.

The county has consistently achieved balanced operations and accumulated substantial reserves. Fiscal 2013 unreserved general fund balance was \$11 million, a very high 53% of expenditures. Fiscal 2014 is expected to end with a small deficit (1.4% of expenditures) due to use of fund balance for capital needs to avoid borrowing.

Fitch expects conservative budgeting and expenditure control to continue, and reserve levels to remain above the policy target of 120 days of spending.

MODERATE DEBT, WELL-FUNDED PENSION
The county's overall debt ratios are moderate, at \$3,526 per capita, or 2.9% of market value. Direct debt amortizes rapidly as per debt polices. The county typically issues notes to finance routine equipment and vehicle purchases. No other new debt is expected in the near future, although a road project may prompt the need for bond issuance in the medium term.

The county provides pension benefits through the Texas County and District Retirement System (TCDRS), a state-wide agent multiple-employer plan. In fiscal 2013 and 2014, the county paid two lump sums (\$1 million and \$750,000) in addition to actuarially required contributions (ARC, around \$900,000 annually) in an attempt to reduce liabilities and future ARC using available surplus revenues. The 2013 funded ratio was satisfactory at an estimated 85.8%, based on Fitch's more conservative investment rate assumption of 7%, an improvement from 79% two years ago. Starting in fiscal 2015, the county will return to funding only the ARC.

The county does not provide OPEB. Fiscal 2013 carrying costs, including debt service and pension contributions, represented an affordable 12.2% of total governmental expenditures.