Fitch Ratings has assigned an 'AA' to the following New Braunfels, TX's
limited tax bonds:
--$22.2 million combination tax and limited pledge revenue certificates
of obligation (COs), series 2012.
The bonds are expected to sell on July 9 via negotiation. Proceeds will
be used to fund improvements to public safety facilities, streets,
railroad quiet zones, parks and recreation facilities, and public works
In addition, Fitch affirms the 'AA' rating on the following bonds:
--$10.4 million of outstanding general obligation (GO) bonds, series
--$56.7 million of outstanding certificates of obligation (COs), series
2003, 2004, 2006A, 2006B, 2007, 2008 and 2009.
The Rating Outlook is Stable.
The bonds, outstanding GO bonds, and outstanding COs are each secured by
an ad valorem tax pledge, limited to $2.50 per $100 of taxable assessed
The bonds and certain outstanding COs are further secured by a limited
(nominal), subordinate lien pledge of net revenues of the city's solid
waste management system, not to exceed $1,000.
Various outstanding CO securities have other revenues additionally
pledged as well:
--Combination Tax and Airport System COs, series 2006A, are further
secured by municipal airport system revenues;
--Combination Tax and Hotel Occupancy COs, series 2006B, are further
secured by the city's hotel occupancy tax revenues.
KEY RATING DRIVERS
STRONG FINANCES: Positive operating margins have bolstered the city's
robust balance sheet resources and are supported by strong financial
management, conservative budgeting, and adherence to stringent financial
EXPANDING TAX BASE: The city benefits from its location between Austin
and San Antonio, two major economic centers, while its own economy
continues to expand. TAV advanced 2.3% in 2012 after flattening in the
prior year and prospects for continued tax base gains are positive.
CONTINUING POPULATION GROWTH: Rapid population growth continues to drive
operating and capital needs.
IMPROVED PENSION FUNDING: The city continues to underfund its
actuarially required pension contributions but is increasing its
contribution in fiscal 2012 and plans to fully-fund this annual
liability by 2014; the funded ratio has also improved due to recent
ELEVATED DEBT LEVELS: Debt levels are currently above average and may
rise further given the significant capital plans of the city. Carrying
costs are also slightly elevated while the rate of amortization is
AVERAGE SOCIOECONOMIC INDICES: Wealth levels of city residents are about
average. Employment is concentrated in a handful of major employers but
total employment growth is continuing and the unemployment rate is
GROWING CITY LOCATED BETWEEN SAN ANTONIO AND AUSTIN
New Braunfels is located in central Texas in the growth corridor between
San Antonio and Austin along Interstate Highway 35 (I-35). The city's
location has contributed to the development of distribution-oriented
businesses and retail activity, both of which are major economic drivers
for the city. Tourism also serves as a significant industry as the city
is home to Schlitterbahn, one of the country's largest water parks, as
well as numerous lakes and rivers; a growing healthcare sector rounds
out the city's economic base.
The city's tax base expanded by a strong 8% average annual growth rate
from fiscal years 2007 to 2011, inclusive of flat TAV last year. Fiscal
2012 TAV grew 2.3% to climb above $4 billion, and city officials expect
similar rate of growth over the near term. Fitch views prospects for
continuing tax base growth positively given the city's favorable
location, stable housing market, and continuing residential and
Population growth is continuing and has occurred at quite a rapid pace
in the past decade, with the current estimated population of 57,740 up
nearly 60% from the 2000 census count. The city expects population
growth to continue over the next few years albeit at a slower pace. The
city is reportedly 75% built-out.
CONCENTRATED EMPLOYMENT BASE BUT GROWTH IS CONTINUING
Employment in the city is concentrated, with the top ten employers
accounting for roughly 39% of total employment and the top three
employers, Comal ISD, Schiltterbahn, and the Scooter Store, each making
up over 6% of total employment, although this concern is partially
mitigated by the fact that many residents commute to jobs in the San
Antonio or Austin areas. Growth in total employment slowed to 1% in
2011, but a stronger 2.1% gain for the 12-month period ended Apr. 2012
improved the unemployment rate from 5.7% to a relatively low 4.8%, which
is better than the state (6.5%) and nation (7.7%).
Wealth levels are about average, with per capita income and median
household income of city residents each slightly above the state but
below national levels. Per capita market value is a moderate $82,000.
AMPLE RESERVES & LIQUIDITY
Finances are strong despite the costs associated with servicing a
rapidly expanding population and the economic downturn. The city has
achieved operating surplus after transfers in three consecutive fiscal
years in the range of 3% and 8% of spending. Fiscal 2011 general fund
results ended with a $1.2 million operating surplus after transfers (3%
of spending), bringing the unrestricted fund balance (the sum of
committed, assigned, and unassigned per GASB 54) to $27.6 million or a
robust 67.5% of spending. Liquidity in the general fund totaled $26.8
million, equal to an also strong 8 months of cash on hand.
Management presently expects to outperform the 2012 operating budget, as
it has done in prior years. The $43.2 million 2012 general fund budget
originally called for a $3.4 million draw on fund balance due mainly to
capital and non-recurring costs, but with revenues up year-to-date,
officials expect a more modest net decline in available fund balance of
$1.5 million deficit after transfers. Fitch notes that the modest use of
reserves in 2012 is consistent with management's plan to draw down
reserves over the next several years to bring the fund balance in line
with the city's formal fund balance policy (unassigned fund balance) of
25% of annual spending.
PENSION LIABILITIES UNDERFUNDED BUT IMPROVING
Pension benefits are provided through the Texas Municipal Retirement
System (TMRS), a statewide agent multiple employer plan. The city's
aggregate unfunded actuarial accrued liability (UAAL) associated with
the plan totaled $29.2 million as of the Dec. 2010 actuarial valuation,
equal to a modest 0.6% of full market value. The city has underfunded
its actuarially determined contribution in recent years as part of plan
option that that allows TMRS entities to gradually increase their
contributions to the full contribution rate over an 8-year period; the
city is in the fourth year of this transition. The city paid 82% of the
ARC in fiscal 2011, and at this underfunded level, the pension cost
consumed a moderate 8.6% of general fund expenditures.
More recent structural and actuarial changes to TMRS' reporting of its
internal fund balances boosted the city's fiscal 2011 funded ratio to
66.9% from 53.1%. Fitch expects further improvement in the pension
funded position over the medium term as the city reaches full-funding of
its ARC as early as fiscal 2014. OPEB liabilities are well-managed, and
the fiscal 2011 pay-go contribution comprised 1.1% of spending.
RISING FIXED COST BURDEN ON THE BUDGET
Debt levels are low on a direct level but increase to above average when
overlapping debt is included at 6.8% of market value and $5,567 per
capita. Total debt service costs accounted for an elevated 15% of
general and debt service fund spending in fiscal 2011 and will rise to a
high 19.2% of spending in fiscal 2013 with this issuance. The aggregated
fixed cost on the budget -- including debt, pension, and OPEB
contributions -- consumed 23.5% of fiscal 2011 general fund and debt
expenditures and will rise further as the city meets increased debt
service costs and full pension contributions in the near term. The rate
of amortization remains average at 58% of principal retired in 10 years.
SIGNIFICANT CAPITAL SPENDING PLANS
This offering funds various citywide improvements and will require up to
a 4.2 cent (22% increase) in the current debt service tax rate (from
$0.187 per $100 TAV to $0.229). The current capital plan (fiscal years
2013 - 2022) totals $278.6 million and outlines $161 million of needs in
the first five years, which would further increase the already elevated
debt levels and carrying costs. The city has described the plan as a
'wish-list' and continues to prioritize projects and scale debt
issuances accordingly. Nevertheless, in light of the potentially
significant increases in key debt ratios, Fitch views the continued tax
base growth and good financial performance as key mitigants to concerns
over a rising debt burden.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com,
National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF