OREANDA-NEWS. August 04, 2015. Fitch Ratings has assigned its 'AA+' rating to the following obligations of Abilene, Texas (the city):

--\\$38.7 million general obligation (GO) improvement and refunding bonds, series 2015;
--\\$2 million combination tax and surplus revenue certificates of obligation (COs), series 2015.

The GO bonds and COs are scheduled to sell via negotiation Aug. 12. Proceeds from the GO bonds will be used for various public improvements and to refund a portion of the city's outstanding debt for interest savings. Proceeds from the COs will be used for public improvements.

In addition, Fitch affirms the following ratings:

--\\$37 million outstanding GO bonds at 'AA+';
--\\$198.8 million outstanding COs at 'AA+'.

The Rating Outlook is Stable.

SECURITY
The GO bonds and COs are payable from a continuing direct ad valorem tax levied against all taxable property within the city, subject to a \\$2.50 per \\$100 assessed valuation limitation prescribed by law. The COs are also payable from a pledge of the net revenues of the city's water and sewer system.

KEY RATING DRIVERS
PRUDENT FINANCIAL MANAGEMENT: The city's conservative budget practices, cost cutting measures, and adherence to fiscal policies contribute to its strong financial position.

SALES TAX DEPENDENCE: High reserve levels temper risks associated with the city's reliance on economically sensitive sales tax revenues for operations.

MANAGEABLE DEBT, EXPANDING CAPITAL PLANS: The overall debt burden and carrying costs for debt and benefits are moderately low. Despite increased capital pressure for utility projects, Fitch expects general purpose capital needs to remain affordable.

STABLE BUT SOMEWHAT REMOTE ECONOMY: The city is the commercial, educational, and healthcare hub for west central Texas and remains dependent upon the presence of Dyess Air Force Base (AFB). Taxable assessed valuation (TAV), employment, and retail sales have shown stable, modest growth. Area wealth and income levels trail the state and national averages.

RATING SENSITIVITIES

MAINTENANCE OF STRONG FINANCIAL POSITION: Abilene's rating is sensitive to shifts in fundamental credit characteristics, including solid financial operations and healthy reserve levels. The Stable Outlook indicates that such shifts are unlikely.

CREDIT PROFILE
Abilene is located 150 miles west of Fort Worth, along Interstate 20, in Taylor and Jones Counties. The estimated city population is 120,000, including about 5,000 military and civilian personnel stationed at Dyess Air Force Base. The city is home to two public hospitals and six higher education institutions.

STRONG FINANCIAL POSITION ENABLED BY PRUDENT MANAGEMENT
The city's strong financial profile is supported by management's conservative budgeting practices that typically produce positive financial operations. The high level of reserves (in excess of 25% of spending policy) positions the city well to withstand cyclical revenue declines.

Economically sensitive sales tax receipts typically comprise around 40% of total general fund revenues. The city budgets conservatively for sales tax revenue each year. Year-to-date receipts for fiscal 2015 grew 4.5% over the same period in fiscal 2014, attributable to overall economic growth.

Public safety represents the largest general fund expenditure, but the city has demonstrated willingness to cut overall costs in order to meet budgeted results. Additionally, excess fund balance above policy level is prudently used to fund general capital projects. The city's proposed fiscal 2016 budget reflects balanced results despite a 3% pay raise for employees.

DEBT PROFILE
Debt levels are expected to remain moderate to low as the city issues bonds under its \\$81 million program authorized by voters in May 2015. Abilene's current direct debt burden of \\$69 million contributes to low overall debt per capita of \\$1,583 and moderate debt as a percentage of market value (3.2%). Principal amortization of direct debt is moderately slow at 42% in 10 years, including the GO bonds and COs now offered.

The GO offering is the first from this authorization, and will require a projected debt service tax rate increase of \\$0.03 in fiscal 2016. The remaining authorized bonds will be issued over the next five years as the projects are incorporated into the general purpose capital plan. Fitch expects that the plan, when finalized, will allow for issuance of debt within the \\$0.17 rate increase communicated to voters. This projection is based on assumptions of continued modest TAV growth considered reasonable by Fitch. The bonds will be offset by \\$33 million of general purpose debt retiring in the next five years.

The city issued \\$187 million of COs in 2013-2015 to fund capital projects in response to drought conditions, and adopted annual rate increases to support the additional debt service. Despite the rate hikes, the city's rates compare favorably to similarly sized Texas systems. Fitch considers this debt to be self-supporting based on the health of the water and sewer system, but a failure to raise rates sufficiently could expose the city's general operations to the potential need to support debt service.

ADEQUATELY FUNDED PENSIONS
The city participates in the Texas Municipal Retirement System (TMRS) for pension benefits to general employees, with a robust funded position of 91% for fiscal 2014, based on an assumed 7% investment return rate. Pension benefits for firefighters not covered by TMRS are provided through the Abilene Fireman's Relief and Retirement Fund, a single-employer defined benefit plan. The funded ratio in this plan for fiscal 2014 is weak at 52% (assuming a 7% rate of return), but the city regularly pays more than the annual required contribution. The combined plans are funded at 80%.

The only other postemployment benefit (OPEB) the city provides is supplemental death insurance; this benefit is administered by TMRS. The annual contribution is nominal at less than \\$50,000 in each of the past three years. Total carrying costs for debt service, pension, and OPEB contributions are considered moderately low at 15.4% of fiscal 2015 governmental fund spending.

ECONOMIC HUB IN RURAL AREA
Abilene's primary employment sectors are government, education, healthcare, and retail. As the economic hub for west central Texas, the city serves an estimated retail base of 300,000. While the city's wealth levels are below the state and U.S. national averages, the unemployment rate (3.6% for March 2015) is historically better than average.

As the city's largest employer, the Dyess AFB plays a key role in the Abilene economy. A significant reduction of troops or activity at the base would materially impact the economic profile.

The city's tax base is fairly diverse and without concentration. TAV grew by a compound annual rate of 2% between fiscals 2009 and 2015 despite the economic slowdown. The Horse Hollow Wind Energy Center, one of the world's largest wind developments, is located just outside the city. With 430 turbines spread across roughly 60,000 acres, various wind energy companies have set up manufacturing and support operations within the city.