OREANDA-NEWS. Fitch Ratings affirms the following ratings of Victoria County (the county), Texas:

--$6.65 million limited tax general obligation (LTGO) bonds at 'AA';
--Implied unlimited tax GO (ULTGO) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an annual property tax levy limited to $0.80 per $100 assessed valuation.

KEY RATING DRIVERS

EXPANDING TAX BASE; CONSERVATIVE BUDGETING: Conservative budgeting combined with an expanding tax base and steady sales tax revenues support the county's ample and increasing reserve levels. Although sales tax revenues have recently become more consistent, previous years show volatility in this revenue stream.

FAVORABLE LIABILITIES PROFILE: The county's debt profile is positive, characterized by moderate carrying costs, moderate principal amortization, a manageable overall debt burden, and modest future debt plans.

CONCENTRATED TAX BASE; REGIONAL CENTER: The county serves as the regional trade center with a tax base concentration in the petrochemical and utility industries; although this is a concern it is mitigated to a degree by diversification within these key industries.

RATING SENSITIVITIES

REVENUE VOLATILITY: The rating is sensitive to economic and resultant revenue volatility associated with petrochemical industry concentration. The Stable Outlook reflects Fitch's expectation that the county will continue to actively manage its budget and maintain high levels of financial flexibility.

CREDIT PROFILE

Victoria County is located between the cities of Houston and Corpus Christi with a 2014 census population of 91,081. The city of Victoria (LTGO rated 'AA', Stable Outlook) is the county seat and is located 30 miles inland of the Gulf of Mexico. The county is a regional trade and retail center of the seven-county region known as the 'Golden Crescent'.

STRONG GROWTH IN TAX REVENUES

Commercial investment and expansion in the county has added to the property tax base and boosted local sales tax in the county. Property taxes make up roughly 45% of county revenues. Property tax revenues in 2014 and unaudited 2015 figures show increases following additions to the tax base. Taxable assessed value (TAV) has consistently increased during the past five years, supporting 20.6% property tax revenue growth over the period. Management's expectations for similar growth going forward appear reasonable given ongoing commercial expansion and residential growth in Victoria City.

Sales tax revenues comprise about 23% of general fund revenues and are inherently cyclical. Sales tax revenues have remained relatively consistent over the past three years. Year 2014 sales tax revenues exceeded final budgeted amounts by 5.4% or $1.6 million; unaudited 2015 figures indicate a slight softening of sales tax revenue at $9.9 million which the county attributes to energy sector contraction. Overall revenues exceeded budget by 2.4% with expenditures coming in $1.3 million or 4% below budget.

Recent growth in sales taxes is supported by the county's proximity to the Eagle Ford Formation and the associated economic activity in the Port of Victoria (Victoria County Navigation District ULTGO 'AA'/Outlook Stable).

GENERAL FUND RESERVES STRONG

Robust economic activity and resultant tax revenue growth support strong reserve levels over the last five years. Reserve levels have increased by a remarkable $5.8 million between the years for 2012 to 2014. The county continues to keep reserve levels strong exceeding its fund balance target of 25% of spending in 2014. 2014 ended with a strong 47.3% of spending in unrestricted fund balance, or $16.5 million.

The 2016 county budget anticipates sales tax revenues remaining consistent at $9.5 million, in line with the estimates for 2015 and 2014. The 2016 budget includes a 3.4% increase in spending and is balanced without the use of reserves. The tax rate will decrease in 2016 to $0.3959 per $100 TAV, well below the $0.80 state cap. Opportunities for expenditure control exist if needed due to unanticipated pressures.

GROWING ECONOMY CONCENTRATED IN PETROCHEMICALS

The county has benefited from The City of Victoria's emergence as a regional service and supply center for heavy industry, including plastics manufacturing and petrochemicals. Development in the areas of higher education and trade from the Port of Victoria offer increased economic diversification and trade opportunities within the county.

The growth of commercial manufacturing paired with continued oil and gas exploration and production in the adjacent Eagle Ford Shale formation have steadily benefited county employment levels. The ongoing contraction of the energy sector within the Eagle Ford Shale (due to falling oil prices) has not directly impacted local employment levels. The unemployment rate remains low and decreased to 4.1% in August 2015 from 4.4% and 5.2% in August 2014 and 2013, respectively, while the labor force increased 0.5% from August 2014 to August 2015. The 2013 median household income stands at a solid 97% and 94.9%of the state and national averages, respectively.

MANAGEABLE LIABILITIES

The county's overall debt levels are moderate at $3,346 per capita and 3.8% of market value. Amortization of debt is moderate at 51% of principal paid off in 10 years.

The absence of a comprehensive capital plan is a credit weakness. However, the county does not anticipate any additional borrowing to complete capital projects. Several county projects are underway and funded through pay-go financing.

The county's pension plan is provided through the Texas County and District Retirement System, an agent multi-employer plan. The Dec. 31, 2013 funded ratio was 82.6% or a still satisfactory 72.6% after using Fitch's more conservative investment rate assumption of 7%.

Other post-employment benefits (OPEB) are largely associated with retirees' participation in the county's self-insured health care plan. OPEB is funded on a pay-go basis, subject to annual approval by county officials. Carrying costs for the county (debt service, pension, OPEB costs) totaled a low 9% of governmental spending in 2014 and are expected to remain manageable going forward.