OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on the following city of Anna, Texas (the city) obligations:

--\$650,000 combination tax and limited surplus revenue certificates of obligation (COs), series 2006;
--\$5,000 limited tax general obligation (LTGO) water bonds, series 1976.

The Rating Outlook is Stable.

SECURITY

The GO bonds and COs are secured by a pledge of ad valorem taxes levied annually within the limits prescribed by law against all taxable property in the city. The COs are further secured and payable from a limited pledge (not to exceed \$1,000) of surplus net waterworks and sewer system revenues.

KEY RATING DRIVERS

SOLID FINANCIAL POSITION: Despite growth pressures and related capital spending, the city has maintained a sound financial position through conservative budgeting practices, as evidenced by regular operating surpluses and healthy fund balance levels.

DEVELOPMENT RESUMES: After a recessionary drop, development activity is accelerating. Aggressive population growth has resumed following modest increases during the trough of the recession. Return to the rapid expansion of past years would bolster the local tax base but also present new service and infrastructure challenges.

HIGH OVERALL DEBT BURDEN: The city's overall debt burden is high, due primarily to the overlapping debt of the local school district. Fitch believes the current debt load is manageable due to the reasonable prospects for continued population and tax base expansion.

RATING SENSITIVITIES

STABLE RESERVES: Maintenance of solid financial reserves, given Anna's sales tax exposure, is a key to maintaining credit quality.

IMPROVED DEBT PROFILE: A meaningful reduction in debt levels due to continued population and tax base growth could lead to positive rating action in the future.

CREDIT PROFILE
The city is located 40 miles north of Dallas in relatively affluent Collin County (the county). Easy access to Dallas and affordable land spurred rapid population growth of 21% per year during the last decade. Despite this growth, the city's 2013 population remained modest at 9,515.

GROWTH RESUMES FOLLOWING RECESSION
Taxable assessed values (TAV) have grown substantially in recent years following moderate recessionary declines of approximately 10% from peak to trough. TAV increased by 14.5% in fiscal 2014, with further growth of 18.7% reflected in fiscal 2015 certified values. Recent growth has been driven by renewed housing market expansion, which is expected to continue in the near term.

The city's top 10 taxpayers represent a modest 7.3% of total TAV and include a mix of retail and commercial establishments. Property tax rates are above average relative to other cities in the county. The city's current rate of \$0.65 per \$100 of TAV represents a 12% hike since fiscal 2009.

Rapid population growth has resumed, with an increase of 12% in 2013 following several years of more modest increases of approximately 1% to 2% during the recession. Management expects growth to continue, pointing to increased demand for local housing and the construction of new single-family homes currently underway.

Wealth levels are mixed. Fiscal 2015 market value per capita grew considerably to \$71,000 from \$56,000 the prior year due to a combination of new residential construction and increased market demand. Per capita money income approximates the state average but is 90% of the national average. Favorably, median household income is roughly 130% of the state and national averages. No employment information is available for the city, but the unemployment rate in the county remained below state and national averages throughout the recession and has trended downward after spiking in 2010. The county's December 2014 rate of 3.7% was well below both the Texas (4.1%) and U.S. averages (5.4%) for the month.

STABLE FINANCIAL PROFILE; HIGH RESERVE LEVELS
The city has managed to meet the service demands of a growing population while maintaining a sound financial profile. The city continues to maintain very high levels of general fund reserves, well above the council-adopted policy of maintaining 90 days operating reserves.

The city's revenue sources are diverse, with property taxes comprising 54% and economically sensitive sales taxes comprising a reasonable 15% of total general fund revenues. Public safety constitutes the largest and fastest growing spending item. The city's 1% sales tax experienced rapid growth during the period of dramatic population growth, even showing double-digit annual growth throughout most of the recent recession. Sales tax revenues exhibit average annual growth of 11.6% over the last six years.

Fiscal 2013 ended with a modest draw on fund balance for capital spending, and fiscal 2014 (based on draft audit) resulted in a \$429,000 net operating surplus (after transfers), increasing the general fund balance to an ample \$3.1 million or 71% of general fund spending. The fiscal 2015 adopted budget is balanced with plans for a modest operating surplus, but unbudgeted capital spending and the purchase of land are now projected to cause another modest deficit. Fitch believes management will continue its proactive financial planning practices and budgetary oversight in order to maintain its sound financial position.

HIGH OVERALL DEBT LEVELS; LOW PENSION FUNDING
While the city's direct debt levels are modest, fiscal 2014 overall debt levels are very high at approximately \$7,800 per capita and 13.9% of fiscal 2014 market value (MV). The high debt burden is mainly driven by substantial overlapping borrowing by the Anna Independent School District (not rated by Fitch). The pace of city debt retirement is moderate at 50% in 10 years.

Most of the city's outstanding debt consists of obligations issued for its waterworks and sewer system. The city plans to restructure both its tax-supported and water and sewer debt within the next few years in order to smooth out debt service requirements, which are scheduled to rise significantly in 2018. Additional tax-supported debt is expected in the near term to fund the construction of a new city hall and roadway improvements. Though the new borrowing is not expected to significantly increase the city's debt burden, recurring borrowing for growth-related capital needs may pressure the city's liability profile in future years.

Anna's employees participate in an agent multiple-employer defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). The city routinely funds 100% of its annual required contributions. However, funding levels are low at 67% assuming a 7% investment rate of return as of Dec. 31, 2012, up moderately from 59% the prior year. Other post-employment benefits (OPEB) are also provided by the city through TMRS but are limited to group-term life insurance benefits, which may be terminated by city council and results in no unfunded liability. Carrying costs related to long-term debt, pension and OPEB liabilities were manageable at 16% of fiscal 2014 governmental fund spending.