OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating on the following Granbury, TX (the city's) debt obligations:

--\$2.5 million combination tax and revenue certificates of obligation (COs), series 2015.

The COs are scheduled for a competitive sale the week of March 23. Proceeds will be used for various public improvements.

In addition, Fitch affirms the 'AA' rating to the following city obligations:

--\$21.25 million refunding general obligation bonds (GOs);
--\$4.4 million COs, series 2007.

The Rating Outlook is Stable.

SECURITY

The GO bonds and COs are payable from annual property tax levy limited to \$2.50 per \$100 taxable assessed valuation (TAV). The COs are additionally payable from net revenues of the city's combined water, sewer and electric utility system.

KEY RATING DRIVERS

PRUDENT FINANCIAL MANAGEMENT: The city's financial profile is characterized by ample reserves and generally positive operating results. Infrequent draws on general fund reserves are for planned one-time capital projects.

SALES TAX RELIANCE: Credit concerns over the city's reliance on economically sensitive sales tax receipts for operations are partially offset by its large financial reserves, conservative budgeting, and demonstrated ability to make significant mid-year budget adjustments. Additionally, a low property tax rate provides flexibility in the event the city needs to adjust its revenue composition in the future.

STABLE LOCAL ECONOMY: The city has a small population, but its local economy is sound, serving both as a bedroom community of Fort Worth and as a growing business center for Hood County. Tourism and recreation also benefit the city's employment and sales tax base.

MANAGEABLE DEBT BURDEN: The city's debt burden is expected to remain moderate as the city has modest future debt plans.

RATING SENSITIVITIES

MAINTENANCE OF STRONG CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the city's healthy reserves which help to mitigate exposure to the inherent cyclicality of sales tax revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Granbury is located 25 miles southwest of Fort Worth with an estimated 2013 population of 8,779, representing a larger than 40% increase from the 2000 census total.

FORT WORTH BEDROOM COMMUNITY / COMMERCE CENTER

Granbury serves as the county seat and retail hub for Hood County and the surrounding area, drawing more than 60,000 people from within a 10 mile radius. Lake Granbury runs through the historic downtown and attracts visitors from outside the region, also contributing to the city's sales tax base.

Proximity to the Dallas/Fort Worth metroplex, land affordability and lake access support a growing commuter and retiree population. The city's TAV remained relatively flat post-recession, aided by the addition of new construction. The city has seen cumulative growth of 8% since fiscal 2012 and management reasonably expects steady, moderate growth going forward given commercial activity and permitting trends.

Commercial and industrial property comprise about a third of the city's tax base. There is no taxpayer concentration with the top 10 taxpayers represented primarily by real estate, retail, and health care organizations. Recently completed transportation projects including Northeast Loop 567 and the airport expansion bode well for the city's future growth prospects.

SOUND FINANCES WITH RELIANCE ON SALES TAX REVENUE

Sales tax receipts provide about one-half of the city's operating revenues, followed by property taxes (14%) and franchise taxes (12%). Sales tax receipts increased year-over-year for almost two decades before declining by 8% in each of fiscals 2009 and 2010, and subsequently rebounding to exceed pre-recession levels by fiscal 2012. Sales tax receipts usually outperform the projections as management historically budgets this revenue stream conservatively.

Fiscal 2014 ended with a \$1 million deficit due to planned one-time transfers from the general fund to the airport and tourism funds. Unrestricted fund balance at year-end represented a sufficient 21% of general fund spending or \$2.9 million. The city remains compliant with its fund balance policy of maintaining 25% of budgeted expenditures after netting out interfund transfers and charges. The fiscal 2015 budget shows a modest general fund surplus and moderate revenue and expenditure growth. Management has assumed 3% growth in sales tax and a 3% merit-based salary increase across all funds. Also, less than a 1-cent uptick in the tax rate to \$0.398 per \$100 TAV was adopted for the year, leaving ample room under the \$2.50 limitation. Year-to-date results point to better-than-budgeted sales tax receipts (6%) and expenditures substantially in line with the budget.

MANAGEABLE DEBT BURDEN

Debt is moderate at 4.5% of market value and amortization is rapid at 80% in 10 years. The obligations will fund various capital projects, including street maintenance and public safety. The five-year capital program through 2019 for general government amounts to a modest \$5.7 million. Primary capital needs are for public safety and parks, and funding will come from a combination of paygo and debt issuances.

Granbury's pension plan is provided through the Texas Municipal Retirement System (TMRS), with a funded position of 76% as of Dec. 31, 2013, based on the TMRS investment rate assumption of 7%. The city does not have any other post-employment benefit obligation (OPEB). Nevertheless, carrying costs for debt service, pension, and OPEB were elevated at 23% of governmental spending in fiscal 2014 and are expected to remain level in the near term given the limited debt plans and rapid amortization.