OREANDA-NEWS. Fitch Ratings has affirmed the following ratings on San Angelo, Texas' (the city) outstanding limited tax general obligation (GO) and certificates of obligation (CO) debt:

--\$26.3 million outstanding GO refunding bonds, series 2007, 2009, and 2011 at 'AA+';
--\$42.7 million outstanding COs, series 2005, 2006, 2007A, 2008, 2009, and 2011A at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GOs and COs are payable from a direct annual ad valorem tax, limited to \$2.50 per \$100 assessed valuation, levied against all taxable property within the city. The COs are further payable from a limited, de minimus pledge (\$1,000) of the surplus net revenues of the city's waterworks and sewer system revenues.

KEY RATING DRIVERS

RETURN TO STRUCTURAL BALANCE: The general fund has returned to structural balance after a period of using non-recurring transfers to fill budget gaps and boost reserves. Fitch expects that the city will maintain structural balance and adhere to its general fund balance policy level of 20% of spending.

STABLE ECONOMY: As a regional hub in west central Texas, the city has a stable local economy which has produced steady gains in its property tax base and sales tax receipts. The local economy has diversified notably, yet the military remains a major presence with Goodfellow Air Force Base.

MODERATE DEBT BURDEN: The city's debt profile is generally positive, with limited additional general government capital needs over the near-term.

RATING SENSITIVITIES

CONTINUED STRUCTURAL BALANCE: The rating is sensitive to shifts in fundamental credit characteristics including structurally balanced financial operations. The Stable Outlook reflects Fitch's expectation that the city will maintain structural balance going forward.

CREDIT PROFILE

San Angelo, which has an estimated population of roughly 97,500, encompasses almost 59 square miles and is located in west-central Texas. Since the 2000 Census, population growth has lagged the state, equaling less than 1% annually.

STABLE ECONOMIC PROFILE

The city's economy is stable, anchored by agriculture, education, healthcare, government, telecommunications, and energy. In addition, there is a sizeable military presence at nearby Goodfellow Air Force Base that is the city's largest employer at 5,500. The city has also has benefitted from activity related to the Cline Shale Formation. However, the city's location on the periphery of the formation has protected the local property tax base from concentration in the energy sector.

Taxable assessed valuation (TAV) grew at an average of 4.6% annually between 2008 and 2015, recording just one year of very modest contraction in 2013. The tax base has shown more robust growth in recent years, with a 7.2% gain for fiscal 2014 and a stronger 9.7% jump in fiscal 2015 (due in part to revaluations); the fiscal 2015 TAV totals \$4.4 billion. Management reports any near-term additions to housing stock will likely come in the form of in-fill development in this mature city.

Employment also fared better than the state and U.S. during the recession. The December 2014 local unemployment rate of 3.1% remained below the state (4.1%) and national (5.4%) averages. Income levels are low at 82% of the state's median household income but are mitigated to a degree by the relatively low cost of living; they also have grown at a faster rate than both the state and nation in recent years.

RETURN TO STRUCTURAL BALANCE

Financial performance has returned to structural balance after a period of volatility in the general fund. The city drew down reserves during and post-recession mostly due to one-time capital costs, but also due to a rise in public safety spending. General fund balance reached a low 13% of spending in fiscal 2010 before the city began a series of non-recurring transfers from the water and sewer utility to restore reserves. Preliminary, unaudited fiscal 2014 results suggest general fund balance reached a high of \$35.5 million or 57% of spending, well in excess of the city's 20% policy minimum

Structural balance was achieved in both fiscals 2013 and 2014 due to strong growth in property and sales tax revenues, which make up 40% and 25% of general fund revenues, respectively. The fiscal 2015 adopted budget prudently assumes flat sales tax collections, a 98% property tax collection rate (versus a near 100% historical rate), and increased spending on street maintenance. The structurally balanced budget is substantially on target year-to-date, and the city is closely monitoring sales tax collections as the current drop in oil prices might impact local retail sales if business activity in the nearby Permian Basin should decline.

MANAGEABLE DEBT LEVELS AND CIP

Overall debt levels are moderate at \$1,677 per capita and 3.2% of market value. The city's future tax-supported borrowing plans are manageable; capital needs consist primarily of street maintenance and a possible new police administrative building. The current pace of amortization is average with 57% of principal retired in 10 years.

San Angelo maintains an agent multiple-employer plan administered through the Texas Municipal Retirement System (TMRS) for civil employees. The city's portion is adequately funded at 81% as of Dec. 31, 2012, based on the TMRS investment rate assumption of 7%. Additionally, the city has a single-employer defined benefit pension plan for city fire fighters. That plan is underfunded at 65% as reported or an estimated 59% when adjusted by Fitch to assume a 7% investment rate of return. Other post-employment benefits (OPEB) are also provided by the city but have been closed to employees hired after Jan. 1, 2000. Total carrying costs including debt service, pension contributions, and OPEB constituted a moderately high 23.7% of fiscal 2014 governmental spending. The city's actual payments to the pension plan have been about \$300,000 less than the annual required contribution in the last three reported years, so actual spending was somewhat below this level.