OREANDA-NEWS. Fitch Ratings assigns an 'F1+' rating to the following tax anticipation notes (TANs) of Harris County, TX:

--\\$100 million TANs, series 2015.

The notes are scheduled to sell competitively during the week of August 24. Proceeds will finance general operating expenditures during fiscal 2016 in anticipation of tax collection.

In addition, Fitch affirms its 'AAA' rating on the following outstanding Harris County obligations:

--\\$957.9 million limited tax (LT) bonds;
--\\$1.2 billion unlimited tax (ULT) bonds.

The Rating Outlook is Stable.

SECURITY
The notes are payable from all general fund property taxes collected in fiscal 2016, excluding taxes levied for debt service or the public improvement contingency (PIC) fund. The ULT bonds are payable from an annual unlimited property tax levy. The LT bonds are payable from an annual property tax levy, limited to \\$0.80 per \\$100 assessed valuation (AV), for limited tax bond debt service, operations and maintenance, and the PIC fund.

KEY RATING DRIVERS

NOTE RATING REFLECTS STRONG CREDIT QUALITY: The 'F1+' rating assigned to the TANs reflects the county's 'AAA' credit quality. The TAN rating also considers the relatively stable nature of county property taxes pledged to noteholders and healthy coverage of note repayments reflecting growing AV and reduced TAN borrowing needs.

STRUCTURAL BALANCE RESTORED: The county has restored structural balance to its financial operations. Substantial budget cuts, public safety cost efficiencies, and strong tax base growth enabled the county to substantially increase its financial cushion which now exceeds its 15% fund balance policy.

AMPLE LIQUIDITY: Year-end cash balances grew significantly in fiscal years 2013-2015 due to significant budget cuts and restored AV growth. Cash balances are projected to increase further in fiscal 2016 due to favorable tax base trends. Additional borrowable funds, including the PIC fund and mobility fund, have ample balances to bolster the county's interim cash position.

HIGH DEBT PROFILE: The county's debt profile is characterized by high overall debt, average amortization, and moderate carrying costs for debt, pension and other post-employment benefit (OPEB) liabilities. The large and expansive property tax base allows the county to maintain its debt service tax rates at modest levels.

ENERGY SECTOR STILL DOMINANT: While diversification into biomedical research, aerospace and international trade via the Port of Houston is evident, energy and petrochemical manufacturing remain major determinants of employment and tax base growth. The plunge in oil prices has slowed the pace of employment growth; any impact on taxable values will occur over the medium term and is dependent on the duration of reduced oil prices.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The county's long-term rating is sensitive to shifts in fundamental credit characteristics including the county's healthy financial profile. Maintenance of solid reserves while addressing its ongoing capital needs is a key credit consideration.

CREDIT PROFILE

Harris County is the largest county in Texas and the third largest in the nation, encompassing all but a small portion of the city of Houston with a population totaling 4.5 million. The county experienced a large 20% population gain in 2000-2010 of which 75% occurred in the unincorporated areas.

REDUCED TAN BORROWING

Short-term borrowing needs stem from the county general fund's reliance on property taxes that are largely collected during the final two months of the fiscal year (ending Feb. 28/29). For fiscal 2016, projected property taxes represent 78% of total general fund revenues. This year's note issuance is the smallest in the past six years (which peaked at \\$450 million in fiscal 2012) due to a resurgent property tax base and ongoing cost controls. The current offering represents a reduced 8% of pledged revenues projected for fiscal 2016. Upon receipt of the bulk of its property taxes in January and February, the county is projected to restore cash balances to favorable levels, even after note repayment.

GROWING ENDING CASH BALANCES

The fiscal 2015 ending cash balance rose favorably by \\$163.5 million, or 44%, enabled by a solid 11% increase in AV and continued cost controls. At \\$539 million, the year-end cash balance represents a strong 39% of disbursements.

This cash position is expected to improve further as the appraisal district's preliminary estimate of fiscal 2016 AV points to a 9.7% increase, adding \\$116 million in tax revenues. The projected ending cash balance for fiscal 2016 after TAN repayment is \\$703 million, equal to a high 50% of disbursements. Coverage from pledged revenues is projected to total a strong 12.4x. Furthermore, taxes collected in January and February are projected to provide 8.8x coverage. Stress tests that double the current property tax delinquency rate to 6% result in negligible impact on coverage.

Additional borrowable funds such as the PIC and the mobility fund have ample balances to bolster the county's cash position. The PIC serves as a rainy day fund and currently equals \\$44 million. The mobility fund, part of the general fund group, currently equals \\$262 million in available resources and can serve as a source of short-term borrowing, requiring only Commissioners' Court approval.

SIGNIFICANT BUDGET CUTS ENABLED STRUCTURAL BALANCE

Recent right-sizing by the county has enabled the return of structural balance to its financial operations. In fiscal 2012, the county eliminated 1,090 positions (5.4% of total positions), including 887 positions in the general fund. Subsequently, fiscal 2013 posted another large surplus, enabled by the county's discontinued use of out-of-county jail facilities, a significant cost driver in recent years. The Commissioners' Court and the criminal justice courts have made progress in working toward reducing jail populations through diversion programs and improved mental health services.

A healthy 9% gain in AV and a 1.2-cent tax rate increase in the operations & maintenance (O&M) fund fueled a large 11.5% gain in general fund revenues in fiscal 2014. Despite a 7.2% increase in expenditures, the fiscal 2014 audit posted a substantial \\$239 million (16% of spending) net surplus and an unrestricted fund balance equal to \\$373 million or 27.1% of spending (net of limited tax debt service). Excluding a \\$44 million balance within the PIC fund, the county's fund balance totaled \\$328 million or 23.9% of spending, well above the county's 15% fund balance policy.

As mentioned above, continued strong operating results are projected for fiscal 2015. The fiscal 2016 budget is balanced, and year-to-date expenditures and revenues are on track through the first four months of the fiscal year. Fiscal year-end 2016 revenues are expected to far exceed budgeted projections as preliminary AV growth (9.7%) is nearly twice as large as budgeted (5%).

TAX BASE REBOUNDING

After declining by 4.2% in fiscal 2011, the county's AV growth has ramped up in recent years, increasing by 9% and 10.7% in fiscal years 2014 and 2015, respectively, prior to the preliminary growth for fiscal 2016 mentioned above.

The ongoing gains in AV are attributed to surging home building and reappraisal gains. The increase is also aided by ample land and limited zoning regulations. The median home sale price in Houston increased (according to Zillow) by a large 10.5% to \\$223,000 over the 12-month period ending May 2015.

Given the current tax rate of \\$0.393 per \\$100 of AV, the county has substantial taxing margin below the \\$0.80 limit for operations and debt service on permanent improvement (limited tax) bonds.

ELEVATED OVERALL DEBT PROFILE

Overall debt ratios are high, particularly at the 'AAA' rating level, at \\$6,296 per capita and 6.3% of market value. The overall amount includes the county's 350 underlying jurisdictions. The county's remaining bond authorization totals \\$351 million and the Commissioners' Court has approved seeking voter authorization for \\$848 million of additional bonds this November. The proposed authorization will consist predominantly of ULT road bonds which are typically issued over a six- to seven-year period. Capital needs, while extensive, appear to be manageable given the county's history of a measured pace of debt issuance and its goal to maintain a level tax rate. The principal payout rate is average with 54% of bonds retired in 10 years.

The county collects the taxes used for payment of debt service primarily during the last three months of its fiscal year, so that the funds are on hand at the beginning of each fiscal year for the following 12 months of debt service.

County employees participate in the Texas County and District Retirement System, a cost-sharing multiple employer plan that is funded at 85.9% as of Dec. 31, 2013. Adjusted by Fitch for a 7% rate of return, the pension plan is funded at an estimated 77%. Employees' OPEB are administered by the county's own agent multiple employer healthcare plan, which it funds on a pay-as-you-go basis. The OPEB UAAL of \\$1.2 billion is modest as a percentage of the county's market value at 0.26%. The county's carrying costs in fiscal 2014 for debt service, pension and OPEB equaled a moderate 15.9% of total governmental spending.

OIL PRICE COLLAPSE CLOUDS OTHERWISE STRONG ECONOMIC PICTURE

The post-recession recovery of Houston's regional economy outpaced that of many other large MSAs, as a robust energy sector, the Port of Houston and healthcare all contributed to recent population and employment gains. However, the 2014 plunge in oil prices may materially affect the pace of economic growth in the MSA over the near term. The Houston MSA is home to several thousand energy companies, ranging from large multi-national concerns to numerous mid-sized-to-smaller exploration, construction, engineering and service companies.

While growth in other sectors (e.g. shipping, healthcare) has reduced dependence on the energy sector over the past several decades, direct employment in the sector was 4% of the 2014 regional total. Estimates of the oil and gas contribution to the MSA's 2014 GDP range from 15%-20%, and, when associated industries are included the share of GDP, increases to 35%-40%.

A number of energy companies have announced companywide layoffs in recent months, including Schlumberger, Halliburton and Baker Hughes. Total job loss estimates vary, but projections for 2015 Houston MSA employment gains are sharply lower than the 3% average annual increases the MSA has experienced recently. MSA employment gains for the 12-month period ending in May 2015 rose a modest 0.8%, well below the state (1.5%) and U.S. (2.0%) average. The MSA's unemployment rate of 4.2% for the month was down from 4.9% in the same period last year and is on par with the state (4.3%) but below the U.S. rate (5.5%).