OREANDA-NEWS. Fitch Ratings has affirmed the following La Porte, Texas' (the city) obligations at 'AA':

--\\$985,000 general obligation (GO) bonds series 2005 and 2006;
--\\$4.6 million certificates of obligation (COs) series 2005, 2006, and 2007;
--\\$270,000 limited tax bonds series 2002.

The Rating Outlook is Stable.

SECURITY

The 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 waterworks, electric, and sewer system (not to exceed \\$1,000).

KEY RATING DRIVERS

SOLID FINANCIAL PERFORMANCE: A recent trend of positive operating margins has built upon the city's already healthy reserves. A conservative budget approach paired with a resilient local economy is likely to support the continuation of strong financial performance.

ADVANTAGEOUS LOCATION: Long-term economic prospects are favorable as the city benefits from its location within the broad and diverse Houston metro area and its proximity to the Port of Houston.

MANAGEABLE DEBT BURDEN: Debt levels are moderate and amortization is rapid. Current debt plans appear affordable given their modest nature and potential for further tax base growth.

RATING SENSITIVITIES

FISCAL PERFORMANCE: The maintenance of a balanced operating profile and strong reserves is necessary to offset the city's somewhat concentrated tax base. Structural imbalance and/or significant draws upon reserves could result in a downgrade.

CREDIT PROFILE

The city is located southeast of Houston, with portions lying along the Houston Ship Channel (Port of Houston Authority GOs rated 'AAA' by Fitch), Galveston Bay, and the Bayport Channel. The Port of Houston ranks second among all U.S. ports in terms of total tonnage and first for foreign tonnage. With a 2014 population of nearly 34,700, the city is characterized by a combination of energy-related industries and residential development. Warehousing is another significant component of the local economy, which is poised to benefit from the expansion of the Panama Canal set for completion early 2016.

FAVORABLE ECONOMIC INDICATORS

The July 2015 unemployment rate of 4.8% was slightly higher than the state (4.2%) yet lower than the nation (5.3%). Wealth levels in the city, as measured by median household income, are 125% of the nation, and the poverty rate trends below state and national averages.

The tax base showed resiliency post-recession, marking only one year of contraction of 5% in fiscal 2011. Losses were easily made up for in subsequent years, with cumulative growth from fiscals 2012-2015 of 25%. Expectations for fiscal 2016 point to another year of expansion, and are an indicator of the local economy's integral role in the overall operations of the Port of Houston.

The tax base is somewhat concentrated with the top 10 taxpayers making up 16% of fiscal 2015 TAV. Industry concentration is high with the 10 top exclusively in warehousing or chemical processing. Inventories and industrial/commercial properties make up about a quarter each of the fiscal 2015 TAV, with residential properties coming in at almost 40%. Concentration would likely appear more significant if the extra-territorial jurisdiction (ETJ) were annexed.

INDUSTRIAL DISTRICT FEE RELIANCE

Industrial district fees or payments in lieu of taxes (PILOTs) historically have generated over 30% of general fund revenues. The industrial entities are located outside of city limits but within the city's ETJ. The companies agree to pay for a portion of what would be taxed if the land were annexed by the city in exchange for the city's agreement not to annex the area. Under these agreements the city is obligated to provide only minimal services to the area.

The last ETJ contract renewal process occurred in 2007 and the contracts have a 12 year term. The PILOTs were gradually increased to 63% of TAV, effective fiscal 2015, and will remain at that level until the contracts expire in 2019. Currently, 149 companies participate in industrial district contracts, a notable increase from 118 in fiscal 2010. These contracts have served the city as a valuable economic development tool for more than 50 years.

STRONG FINANCIAL PROFILE

Financial performance has been very strong as evidenced by consistently high unrestricted general fund reserves equal to 75% of spending in fiscal 2014. The city prudently uses excess revenues for pay-go capital spending, annually making a transfer to the capital projects fund while maintaining a high level of general fund reserves.

The fiscal year ending Sept. 30, 2015 is expected to be break-even despite the use of \\$3 million in general fund revenue for capital projects. The fiscal 2016 adopted budget is balanced and includes a flat tax rate, a 3% salary increase for personnel, and \\$3.1 million in pay-go for capital projects. Management conservatively budgets a 2% increase in sales tax collections, compared to an average annual growth rate of 11% during the last 10 years.

AFFORDABLE LONG-TERM LIABILITIES

The city's overall debt is on the high side of moderate at 4.7% of 2015 market value, mitigated by rapid amortization with 100% of direct debt retired in 10 years. Management plans to issue \\$8 million in COs for utility projects later this month. Carrying costs for debt service, pension and OPEB contributions are affordable at 16% of fiscal 2014 governmental spending and are expected to remain so given the city's modest capital needs and management's practice of meeting general infrastructure needs with available operating funds.

The city provides pension benefits through the Texas Municipal Retirement System (TMRS), an agent multi-employer retirement system. Funding levels have improved markedly from a funded ratio of 66% in 2009 to 84% in 2014. This improvement is due in part to a statewide accounting restructuring of the system's available funds. Other post-employment benefits for retiree healthcare are funded on a pay-go basis and the UAAL is 1% of market value.