Dépêches

Fitch Affirms Mueller Local Govt. Corp., TX Contract Revs at 'AA'

Dépèche transmise le 7 octobre 2009 par Business Wire

AUSTIN, Texas--(BUSINESS WIRE)--During the course of routine surveillance, Fitch Ratings affirms its 'AA' rating on the Mueller Local Government Corporation, Texas' (the corporation) contract revenue bonds, series 2006, of which $11.6 million are outstanding.

Additionally, Fitch affirms at 'AA+' the following city of Austin (the city) ratings:

--Approximately $922 million outstanding general obligation (GO) bonds;

--$129 million certificates of obligation (COs);

--$76 million contractual obligations.

The Rating Outlook is Stable. (Note: The corporation sold $15 million of tax increment contract revenue bonds, Series 2009 the week of Sept. 28. Fitch was not asked to assign a rating to the tax increment contract revenue bonds, and Fitch's current rating action does not apply to those bonds.)

The series 2006 bonds are limited obligations of the corporation and are payable solely from payments made pursuant to a grant agreement between the corporation and the city. Grant payments are subject to appropriation and funded from available monies in the city's general fund, including sales tax revenues from retail activity in the project area. Proceeds from the series 2006 bonds financed infrastructure improvements, including streets and drainage, in the redevelopment area including and surrounding the city's old municipal (Mueller) airport site.

The 'AA' rating reflects the general credit characteristics of the city, the appropriation risk associated with grant payments, the essentiality of project improvements which are city-owned upon completion and minimal likely impact to the city's general fund should ear-marked sales tax revenues continue to not meet annual debt service requirements. The Austin area economy has softened in recent months due to the ongoing recession, but key indicators of current recessionary pressures - residential foreclosure rates, housing values, declining sales tax revenues - have held up better than in many other cities. Fitch believes the diverse local economy bodes well for a solid resumption of growth once national economic conditions improve.

The city's audited fiscal 2008 general fund results included a decline in general fund reserves of roughly $18 million, driven primarily by a net reduction of $13 million in the budget stabilization reserve for one-time capital outlays as allowed by city policy. Sales tax revenues fell short of budget projections and were up less than 1% from the prior year (an 8% increase had been budgeted). Despite the drawdown in reserves, the unreserved general fund balance remained satisfactory at $85.1 million, or about 14% of spending and transfers out. For fiscal 2009, the accelerating slowdown in sales tax (projected down nearly 10%) and weaker development-related revenues contributed to a mid-year $29 million downward revision in general fund revenues. The city responded by reducing expenditures, and the current estimate is for a $4 million net surplus (before application of budget stabilization reserves to one-time outlays).

City officials estimate that fiscal 2009 sales tax revenues from retail activity in the project area totaled about $810,000, or around 83% of fiscal 2010 debt service on the series 2006 bonds ($982,456). Fitch observes that this $172,000 gap represents a minimal obligation for Austin's general fund; Fitch also believes that because of the project area's advantageous location, additional retail development will occur over the next several years that will close the gap and fully fund annual debt service requirements through final maturity in 2026.

The city's fiscal 2010 budget reflects the current recessionary climate, with sales tax revenues projected to decline by another 5% (in addition to the 10% drop expected for fiscal 2009). Both general fund revenues and outlays are projected to increase roughly 4% from estimated fiscal 2009 totals, and the property tax rate will increase approximately $0.02 per $100 of taxable value. To close an initial $32 million budget gap, the city scaled back spending in various departments, led by an agreement by police officers and emergency medical technicians to forego a scheduled 2.75% pay increase in 2010 for one year.

Austin's debt profile is moderate, and the pace of debt retirement is above average. The city's taxable assessed valuation (TAV) growth continued for fiscal 2010, albeit at a slower pace. The fiscal 2010 TAV of $80.2 billion is up nearly 5% from last year, slower than the average annual gain of 9% over the previous five years.

The corporation was formed in 2004 to assist in the redevelopment of the Mueller airport site, located three miles northeast of downtown Austin and comprising 700 acres, a portion of which are adjacent to Interstate Highway 35 that bisects Austin from north to south. The redevelopment plan calls for the construction of 4,900 single-family and multi-family residential units, three million square feet of commercial space (including 790,000 square feet of retail), an elementary school and 140 acres of parks and open space. The Austin city council serves as the corporation board, and city staff members serve as corporation officers. The city also formed a reinvestment zone in connection with the redevelopment effort, which likely will be the financing vehicle for future infrastructure improvements in the project area.

For more information on the City of Austin, see Fitch's report 'Austin, TX' dated Aug. 21, 2009 and available at www.fitchratings.com.

Additional information is available at www.fitchratings.com.

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