OREANDA-NEWS. Fitch Ratings affirms its ratings on Azle, Texas' (the city) outstanding limited tax debt as follows:

--\$2 million in outstanding general obligation (GO) bonds at 'AA-';
--\$4.7 million in outstanding certificates of obligation (COs) at 'AA-';
--\$235,000 in outstanding tax notes at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds, COs, and tax notes are payable from a limited ad valorem tax pledge of the city, not to exceed \$2.50 per \$100 of taxable assessed valuation (TAV). The current property tax rate is \$0.67, including \$0.14 for debt service.

The COs are additionally secured by a nominal pledge of surplus net revenues (limited to \$1,000) of the city's waterworks and sewer system.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The city demonstrates sound financial management through consistently positive operating performance, healthy fund balance levels, conservative budgeting and excellent reporting.

STABLE ECONOMIC CONDITIONS: The city is a bedroom community in the larger Fort Worth metro area with average incomes and recent steady job growth. TAV has recovered from a recessionary dip and almost back to its fiscal 2009 high.

MODERATE DEBT AND LONG-TERM LIABILITIES: Near-term capital needs are not material to the debt profile, which is characterized by moderate debt ratios, rapid amortization, a well-funded pension plan and manageable carrying costs.

RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics, including the city'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
Azle is located primarily in Tarrant County, 17 miles northwest of downtown Fort Worth. Historically an agricultural community, residential development over the past 10-15 years led its transition into a Fort Worth bedroom community.

The city is small, encompassing roughly eight square miles with about 11,000 residents. Income and wealth metrics are slightly above average. The city also benefits from its geographic location over workable portions of the Barnett Shale formation, one of the largest natural gas fields in the U.S.

SOLID REGIONAL ECONOMIC BASE

Recent gains in the regional economy are evidenced by employment expansion. Tarrant County's employment level grew by 12% from 2009 to 2014, ahead of the state (11%) or the nation (5%) during the same time period. The county unemployment rate also compares favorably to the nation, at 4.6% (as of November 2014) versus 5.5%, and is trending downward. The largest area employers include retailers and healthcare providers.

Following a modest decline from 2010 to 2013 due to the housing-led downturn and lower natural gas prices, Azle's TAV grew modestly in fiscal 2014 and 2015; at \$657.7 million TAV is now at 99.5% of its pre-recession peak (\$660.9 million in 2009). Further steady growth is expected given recent permit numbers and planned economic development efforts.

The tax base is predominantly residential (71%), complemented by commercial establishments at 16%. The top 10 taxpayers contribute a moderate 9.5% of TAV, led by Wal-Mart at 3.2%.

SOUND FINANCIAL PROFILE

The city's consistently positive financial performance is a credit strength. The city has reported operating surpluses since at least fiscal 2007 and general fund reserves have been no less than 52% of spending, well in excess of the city's adopted reserve policy of 120 days or 33% of spending. Unaudited fiscal 2014 results include a \$4.8 million (63% of spending) unrestricted general fund balance.

The fiscal 2015 budget currently projects a 5% deficit, partly due to planned one-time capital spending. The city is likely to outperform budget and end with a smaller deficit or break-even results, given its conservative budgeting practices. Expenditure increases have been modest and closely monitored despite continuing personnel cost pressures. The general fund's largest revenue source is property taxes (43%), followed by sales taxes (22%).

MODERATE LONG-TERM LIABILITIES, POTENTIAL NEW DEBT

The city's overall debt ratios are low to moderate, at \$1,637 per capita and 2.5% of market value. Direct debt amortization is rapid as per debt policies, at 78% in 10 years. The city pay-go funds a large part of its routine capital needs but may issue debt for a new city hall and police station that are currently under consideration. Given the projected costs of these projects, the potential additional debt is unlikely to materially change the debt profile.

The city participates in the Texas Municipal Retirement System (TMRS), a statewide agent multiple-employer plan. Fitch considers the city's funded position satisfactory at 81%. Other post-employment benefits (OPEB) are funded on a pay-go basis, and the unfunded actuarial liability (UAAL) is about 0.01% of market value. Carrying costs including debt service, pension contributions and OPEB pay-go totaled a manageable 17.2% of governmental spending in fiscal 2013.