Fitch Rates Granbury, TX's COs 'AA'; Outlook Stable

--$10 million combination tax and revenue certificates of obligation (COs), series 2016.

The bonds are scheduled for competitive sale the week of Jan. 18 and proceeds will be used for various capital projects.

Fitch has affirmed the 'AA' rating on the following outstanding obligations of the city:

--$6.4 million combination tax and revenue COs, series 2007 and 2015;
--$19.3 million general obligation (GO) refunding bonds, series 2008, 2011, 2013, and 2014.

The Rating Outlook is Stable.

SECURITY
The GOs and COs are payable from a property tax limited to $2.50 per $100 of taxable value. The COs are additionally secured by a de minimis pledge of net utility system revenues, not to exceed $1,000.

KEY RATING DRIVERS
PRUDENT FINANCIAL MANAGEMENT: The city's financial profile is characterized by ample reserves and generally positive operating results. Infrequent draws on general fund balance are for planned one-time capital projects.

SALES TAX RELIANCE: Credit concerns over the city's reliance on sales taxes are offset by its large financial reserves, conservative budgeting, and demonstrated ability to make significant mid-year budget adjustments. Additionally, a low property tax rate provides flexibility in the event the city needs to adjust its revenue composition in the future.

STABLE LOCAL ECONOMY: The city has a small population, but its local economy is sound, serving both as a bedroom community of Fort Worth and as a growing business center for Hood County. Tourism and recreation also benefit the city's employment and sales tax base.

MANAGEABLE DEBT BURDEN: The city's debt burden is expected to remain moderate as the city has modest future debt plans.

RATING SENSITIVITIES
MAINTENANCE OF STRONG CREDIT FUNDAMENTALS: The rating is sensitive to significant shifts in the level of the city's reserves which help to mitigate exposure to the inherent cyclicality of sales tax revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE
Granbury is located 25 miles southwest of Fort Worth with an estimated 2014 population of 8,735, up about 2,000 people since the 2000 census.

FORT WORTH BEDROOM COMMUNITY/COMMERCE CENTER
Granbury serves as the county seat and retail hub for Hood County and the surrounding area, drawing more than 60,000 visitors from within a 10 mile radius. Lake Granbury runs through the historic downtown and attracts visitors from outside the region, also contributing to the city's sales tax base.

Proximity to the Dallas/Fort Worth metroplex, land affordability and lake access support a growing commuter and retiree population. The city's taxable assessed value (TAV) remained relatively flat in fiscals 2010 and 2011, aided by the addition of new construction which offset existing home value declines. The city has seen cumulative growth of almost 20% since fiscal 2012 and management reasonably expects steady, moderate growth going forward given commercial activity and permitting trends.

Commercial and industrial property comprise about a third of the city's tax base. There is no taxpayer concentration with the top 10 taxpayers represented primarily by real estate, retail, and health care organizations. Recently completed transportation projects including Northeast Loop 567 and the upcoming airport expansion bode well for the city's future growth prospects.

SOUND FINANCES WITH RELIANCE ON SALES TAX REVENUE
Sales tax receipts provide about one-half of the city's operating revenues, followed by property taxes (15%) and franchise taxes (13%). Sales tax receipts increased year-over-year for almost two decades before declining by 8% in each of fiscals 2009 and 2010, and subsequently rebounding to reach over $7 million in fiscal 2015. Sales tax receipts usually outperform projections as management historically budgets this revenue stream conservatively.

Fiscal 2014 ended with a $1 million deficit due to planned one-time transfers from the general fund to the airport and tourism funds. Unrestricted fund balance at year-end represented a sufficient 21% of general fund spending or $2.9 million. The city remains compliant with its fund balance policy of maintaining 25% of budgeted expenditures after netting out interfund transfers and charges.

Unaudited results for fiscal 2015 point to a $750,000 surplus due to better-than-budgeted revenue performance and an underspending of the budget. Three months into fiscal 2016, management reports no significant variances with the budget and all revenue streams are trending higher than fiscal 2015, with sales tax revenues up 11% from this time last year (versus a budgeted 3%). The 2016 adopted budget included a 5% increase over last year's budget and a flat property tax rate of $0.3976 per $100 TAV.

MANAGEABLE DEBT BURDEN
Debt and amortization are moderate at 4.5% of market value and 50% retired in 10 years, respectively. The obligations now offered will fund various capital projects, including a land purchase for the airport expansion, engineering costs for a future police station, and general fire department, park, and street maintenance. The city is currently updating its comprehensive plan and anticipated public safety and park related capital projects appear affordable.

Granbury's pension plan is provided through the Texas Municipal Retirement System (TMRS), with a funded position of 76% as of Dec. 31, 2013, based on the TMRS investment rate assumption of 7%. The city does not have any other post-employment benefit obligation (OPEB). Nevertheless, carrying costs for debt service, pension, and OPEB were elevated at 23% of governmental spending in fiscal 2014 and are expected to remain level in the near term given the manageable capital plans.