Fitch Affirms Greenville, Texas' GOs at 'AA-'; Outlook Stable
--\\$33.6 million outstanding GOs at 'AA-';
--\\$5.3 million combination tax and revenue COs at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The GO bonds and COs are a general obligation of the city, payable from the collection of property taxes levied against all taxable property within the city, subject to a constitutional limit of \\$2.50 per \\$100 assessed valuation. The COs are further secured by a limited pledge (not to exceed \\$1,500) of net revenues of the city's waterworks and sewer system.
KEY RATING DRIVERS
SOUND FINANCES: The city has maintained a sound financial position. Ending balances have been healthy and in excess of policy targets.
BELOW AVERAGE ECONOMIC INDICATORS: The local economy benefits from its proximity to Dallas/Fort Worth area. However, city wealth and income indicators remain below average and unemployment is higher than the state, though lower than the national level.
HIGH DEBT BURDEN: The city's overall debt ratios are high, largely reflecting school district-related overlapping debt. The city's direct debt service as a percentage of spending is also high, but amortization is rapid. Carrying costs for debt service, pension and other post-employment benefits (OPEB) as a percentage of governmental fund spending are manageable.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The city's history of maintaining solid reserves while addressing operating and capital needs indicates continued rating stability.
CREDIT PROFILE
The city of Greenville is located approximately 45 miles northeast of Dallas. The city's population (25,917 in 2013) has grown by about 8% since 2000.
SOUND FINANCES INCLUDE STRONG RESERVE BALANCES
The city has maintained solid unrestricted general fund balances, despite planned drawdowns related to one-time capital spending needs. Balances have exceeded 20% of spending, the city's unassigned fund balance target, over the last seven fiscal years. Fiscal 2014 ended with a \\$4.7 million unrestricted general fund balance, or 23.3% of spending.
A modest general fund net operating surplus (1.5% of spending) is budgeted for fiscal 2015. Management reports that revenues and expenditures are generally close to budgeted expectations, with strong sales tax collections. Recent years' actual performance has tended to outperform budgeted expectations. Sales tax (about 30% of total general fund revenues) year-to-date collections through February 2015 show an increase of about 9% over the prior year, as compared to budgeted expectations of about 4% annual growth for fiscal 2015.
The city expects balanced operations for fiscal year 2016, with no significant drawdown of general fund balance. The city's overall tax rate has been \\$.6999 per \\$100 assessed valuation since fiscal 2011, well under the \\$2.50 per \\$100 assessed valuation limit, and is expected to remain at that level in the near-term.
BELOW AVERAGE ECONOMIC INDICATORS
Greenville's economy is somewhat concentrated, but benefits from its proximity to the Dallas-Fort Worth metro area. The top ten taxpayers represent 20.2% of TAV. The top taxpayer, L-3 Communications, an aviation electronics fabrication and aircraft rehabilitation company, represents 8.8% of TAV.
Taxable assessed value (TAV) performance has been uneven, with flat performance (0.5% increase) in fiscal year 2012 followed by 5.2% growth in fiscal year 2013. TAV declined in fiscal 2014 (5.2%), reflecting the loss of a major taxpayer (Newell-Rubbermaid) and newly enacted tax exemptions, but returned to growth in fiscal 2015 (10.7%). Fitch expects growth to continue, as there are a number of planned new businesses and business expansions, as well as residential development.
The city's February 2015 unemployment (5.3%) was higher than the state average (4.3%), but lower than the national average (5.8%). City income levels remain below the state and national averages, while city poverty levels are well above state and national indicators.
HIGH DEBT BURDEN
City debt ratios (\\$4,674 per capita and 8.2% of market value in fiscal 2014) are high, largely reflecting school district overlapping debt. Direct debt service as a percentage of governmental spending is also high (12.7%), but debt amortization is rapid, with about 76% maturing in 10 years. City debt is expected to remain at these levels, as additional issuance is contemplated.
In May 2013, voters approved \\$12.6 million in general obligation bonds to fund street projects and \\$15 million for an event facility to be leased to the YMCA. The city issued the street project-related bonds in 2014 and 2015, but is not currently planning to go ahead with construction of the event facility. The city is considering near-term additional issuance of about \\$4 million in COs for street projects.
The city participates in two retirement plans, the Texas Municipal Retirement System (TMRS), which covers most of the city's employees, and a smaller plan, the Firemen's Relief and Retirement Fund (FR&R), which covers firefighters and certain public safety communications workers. The TMRS plan had a funded position of 97% as of Dec. 31, 2012 based on the plan's 7% rate of return. The city has been contributing 100% of its actuarially required contribution (ARC) for TMRS.
The FR&R plan was only 47.4% funded as of Dec. 31, 2012 or an even weaker 41.7% estimated by Fitch, based on a 7% rate of return. The amount of the plan's unfunded liability is equal to about 1% of market value. The city has been making the statutorily required payment based on a percentage of payroll, which has been less than the ARC. For fiscal year 2014, the city's contribution of \\$588,990 was about 63% of the total actuarially-based required contribution. Combined carrying costs for debt service, pension ARC, and other post-employment benefits (pay-go) as a percentage of governmental spending were high but manageable at about 24% in fiscal 2014.
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