OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to the following San Angelo, Texas' obligations:

--$16 million combination tax and limited surplus revenue certificates of obligation (COs), series 2016;
--$19.9 million limited tax general obligation bonds (GOs), series 2016.

The GOs are scheduled for negotiated sale and the COs are scheduled for competitive sale, both the week of February 29. Proceeds from the GOs will be used to redeem portions of the district's outstanding debt for interest

Fitch has also affirmed the 'AA+' on the following outstanding obligations (pre-refunding):

--$22.5 million GO refunding bonds, series 2007, 2009, and 2011;
--$34.2 million combination tax and limited surplus revenue COs, 2008, 2009, and 2011A;
--$5.2 million combination tax and revenue COs, series 2007A.

The Rating Outlook is Stable.

SECURITY
The GOs and COs are payable from a direct annual ad valorem tax, limited to $2.50 per $100 assessed valuation, levied against all taxable property within the city. The COs are further payable from a limited, de minimis pledge ($1,000) of the surplus net revenues of the city's waterworks and sewer system revenues.

KEY RATING DRIVERS
STRUCTURAL BALANCE MAINTAINED: The general fund has regained structural balance after a period of using non-recurring transfers to fill budget gaps and boost reserves. Strong revenue performance in recent years has also contributed to reserve levels well in excess of policy.

STABLE ECONOMY: The city's economy is stable, serving as a regional hub in west central Texas for retail, medical, and educational services. The local economy has diversified notably, yet the military remains a major presence with Goodfellow Air Force Base.

MODERATE DEBT BURDEN: The city's debt profile is generally positive, with affordable tax-supported capital needs over the near term.

RATING SENSITIVITIES
STRONG OPERATING PERFORMANCE: The rating is sensitive to the city's ability to maintain sufficient reserves to offset periods of revenue volatility.

CREDIT PROFILE
San Angelo, which has an estimated population of roughly 100,000, encompasses almost 59 square miles and is located in west-central Texas. Since the 2000 Census, population growth has lagged the state, equaling less than 1% annually.

STABLE ECONOMIC PROFILE
The city's economy is stable, anchored by agriculture, education, healthcare, government, telecommunications, and energy. In addition, there is a sizeable military presence at nearby Goodfellow Air Force Base that is the city's largest employer at 5,500. The city has also has benefitted from activity related to the Cline Shale Formation. However, the city's location on the periphery of the formation has exposed the local economy to fluctuations in petroleum prices in the form of sales tax revenue volatility.

Taxable assessed valuation (TAV) performed well post-recession, recording just one year of very modest contraction in 2013. The tax base has shown robust growth in recent years, averaging 8.5% gains annually from fiscals 2014-2016 (due in part to revaluations); the fiscal 2016 TAV totaled $4.8 billion. Management reports any near-term additions to housing stock will likely come in the form of in-fill development in this mature city.

Employment fared better than the state and U.S. during the recession. The December 2015 local unemployment rate of 3.9% remained below the state (4.2%) and national (5%) averages. Income metrics are mixed but generally lag state and national levels.

MAINTAINANCE OF SOUND RESERVES
Management has boosted general fund reserves in recent years through a series of transfers primarily from the water and sewer funds, bringing fund balance from 13% of spending in fiscal 2010 to a high 48.9% of spending in fiscal 2014, well in excess of the city's 20% policy minimum. General fund revenues are made up of property tax (40%) and sales tax (25%) revenues, and the latter revenue stream showed strong year-over-year growth from fiscal 2012-2015.

Unaudited fiscal 2015 results point to another year of surplus after transfers, adding roughly $5 million to fund balance due to strong revenue performance. The 2016 budget was adopted as balanced, yet management reports a 10% contraction in sales tax revenues from prior year results due to a reduction in economic activity associated with natural resources mining. Management is monitoring revenue collections closely and reports that it will make appropriate expenditure adjustments in the case of revenue shortfalls.

MANAGEABLE DEBT LEVELS AND CIP
Overall debt levels are moderate at $2,049 per capita and 3.7% of market value. The city's tax-supported borrowing plans are manageable; tax-supported capital plans consist primarily of street improvement projects after the city completed a comprehensive assessment, and possibly a new police administrative building. Capital needs for the water-sewer system will be self-supported by the system through a series of rate increases. The pace of amortization of tax-supported debt is swift with 71.3% of principal retired in 10 years.

San Angelo maintains an agent multiple-employer pension plan administered through the Texas Municipal Retirement System (TMRS) for civil employees.

The city's portion is adequately funded at 81% as of Dec. 31, 2012 (the most recent valuation date), based on the TMRS investment rate assumption of 7%. Additionally, the city has a single-employer defined benefit pension plan for firefighters. That plan is funded at 65% as reported or an estimated 59% when adjusted to assume a 7% investment rate of return. Other post-employment benefits (OPEB) are also provided by the city but have been closed to employees hired after Jan. 1, 2000.

Total carrying costs including debt service, required pension contributions, and OPEB constituted a moderately high 23.7% of fiscal 2014 governmental spending. Actual payments to the firefighter's pension fund have fallen short of the annual required contributions in recent years, further straining the funded position of the plan. This concern is mitigated by the unfunded actuarial accrued liability representing less than 1/10 of 1% of the city's market value.