OREANDA-NEWS. Fitch Ratings assigns a rating of 'AA+' to the following City of Denton, Texas (the city) obligations:

--$34.26 million general obligation (GO) refunding bonds, series 2015.

The GO bonds are scheduled for a competitive sale the week of August 17. GO proceeds will be used to refund outstanding obligations for interest savings.

The city's $570.6 million in outstanding limited tax debt is currently rated 'AA+' by Fitch.

The Rating Outlook is Stable.

SECURITY

The GOs and COs are secured by an annual property tax levy, limited to $2.50 per $100 of taxable assessed valuation (TAV). The COs are additionally payable from a limited pledge of utility system surplus revenues.

KEY RATING DRIVERS

SOLID FINANCIAL POSITION: Management's commitment to structural balance is reflected in sound reserves and strong liquidity. Budgeting is conservative, with results that are typically better than the city's forecasts. Revenues exhibit relatively low volatility and the city's cost structure retains ample flexibility.

LARGE, DIVERSE REGIONAL ECONOMY: Denton benefits from participation in the broad Dallas-Fort Worth (DFW) economy, as demonstrated by a growing local population and employment base. The city's education levels are strong, and per capita personal income is on par with the national average.

SOUND TAX BASE GROWTH: The diverse tax base has realized solid growth amid low volatility. Situated along the North American Free Trade Agreement transportation corridor (IH 35), the city's tax base includes a broad array of industrial, warehousing and commercial interests. An expanding regional transportation network positions the city well for future growth.

ELEVATED BUT MANAGEABLE DEBT: Fitch expects the city's debt to remain elevated given local and regional growth needs. However, the burden on the budget for debt service and pensions is manageable.

RATING SENSITIVITIES
SOUND FINANCES; MANAGEABLE DEBT: The rating assumes a strong financial profile and manageable debt consistent with the city of Denton's current rating.

CREDIT PROFILE
Denton is located at the convergence of IH 35 East and IH 35 West, approximately 35 miles north of Dallas and Fort Worth.

DIVERSE LOCAL ECONOMY WITH GROWTH PROSPECTS

The city is known for its institutions of higher education and regionally prominent medical sector. Denton is home to the University of North Texas (UNT) and Texas Woman's University (TWU), with combined enrollment exceeding 48,500. The city's growing heath care facilities serve north Texas and southern Oklahoma. These institutions include Columbia Medical Center Denton, Texas Health Presbyterian Hospital, and The Heart Hospital Baylor Denton.

The city's TAV grew by a sound annual average of 7.8% over the past seven years, with a strong fiscal 2016 increase of 8.5% to $8.5 billion. New commercial and retail development continues to accompany the city's residential growth. Ongoing industrial expansions and relocations contribute to the city's low 3.2% unemployment rate as of March 2015.

Recent tax base growth reflects development within the city's reinvestment zones, the newly created Rayzor Ranch Public Improvement District and several business parks. The Public Improvement District (PID Number One) is being developed as a mixed-use commercial, retail and multi-family development.

Fitch anticipates the combination of significant regional transportation improvements currently underway and the city's ample developable land will likely result in ongoing growth for the near- to intermediate-term.

SOUND FISCAL MANAGEMENT

A diversified revenue base of ad valorem tax (38%), sales tax (31%), and franchise fees (16%) support the city's governmental operations. Management efforts to align expenditures with revenue growth contribute to generally positive operating results.

The general fund recorded healthy unrestricted reserves of $25.8 million or 28.8% of spending at the end of fiscal 2014. The city expects fiscal 2015 sales tax revenue growth of 8.1% and cost savings to fund $1.3 million in nonrecurring projects this year. Officials estimate unrestricted reserves of 25.4% of spending at the end of fiscal 2015 reflecting the city's projected modest increase in reserves.

The proposed fiscal 2016 balanced budget includes reasonable revenue projections. The budget maintains the current compensation plan and increases street maintenance, public safety, and emergency management services. The city's five-year forecast reflects continued growth, with maintenance of reserves at a level consistent with the city's 20% of spending policy floor.

MANAGEABLE DEBT BURDEN; ONGOING NEEDS

Overall debt is above average at 7.0% of market value due largely to high overlapping debt of local school districts. The city's debt service, pension and other employment benefits represent a manageable 22.6% of fiscal 2014 governmental spending. The 10-year principal amortization rate is healthy at 61%.

The city's fiscal 2016 proposed five-year capital plan includes an estimated $769 million of funding primarily for aging utility infrastructure. Most of the plan's debt is supported by the city's enterprise operations, and Fitch will monitor the sufficiency of rate adjustments and revenues going forward to service the enterprise-supported debt.

The city participates in the Texas Municipal Retirement System (TMRS) for all eligible employees except firefighters. TMRS had a satisfactory fiscal 2014 funded ratio of 77.3% based on an investment assumption of 7%. The city's firefighters' pension is also funded at an adequate level of 77.1% based on the plan's 7% investment rate assumption. The city also provides other post-employment benefits (OPEB) to its employees. Pension and OPEB costs represent a modest obligation in relation to the city's market value.