Fitch Rates Mansfield, TX GOs & COs 'AA'; Outlook Stable
AUSTIN, Texas -- November 20, 2012
Fitch Ratings has assigned an 'AA' rating to the following Mansfield, Texas
(the city) bonds:
--$5 million general obligation (GO) refunding bonds, tax exempt series 2013;
--$3.2 million GO refunding bonds, taxable series 2013;
--$5.6 million combination tax and revenue certificates of obligation (COs),
The bonds are scheduled for a negotiated sale the week of December 26. GO
proceeds will be used to refund a portion of the city's outstanding
tax-supported debt and CO proceeds will finance street improvements.
In addition, Fitch affirms the following:
--$95.3 million (pre-refunding) outstanding GO bonds and COs at 'AA';
--$12.5 million Mansfield Economic Development Corporation (EDC) outstanding
sales tax bonds at 'AA-';
--$12.2 million Mansfield Park Facilities Development Corporation (PFDC)
outstanding sales tax bonds at 'AA-'.
The Rating Outlook is Stable.
The GO bonds and COs are secured by a limited ad valorem tax levied against
all taxable property in the city; the COs are secured further by a pledge of
net revenues of the city's water and wastewater system, not to exceed $1,000.
The outstanding EDC and PFDC sales tax bonds are special obligations of each
corporation and are payable from and secured by a first lien on and pledge of
a separate 1/2 of 1% sales and use tax levied within the city for the benefit
of the corporations. Both the EDC and PFDC were formed by the city to promote
and provide for economic development.
KEY RATING DRIVERS
PRUDENT FINANCIAL MANAGEMENT: The city's policies and stewardship have
contributed to sound general fund balances in compliance with policy levels.
Management budgets conservatively and historically achieves operating
STABLE LOCAL ECONOMY: The city's profile is characterized by above-average
income and relatively low unemployment, resulting in part from an expanding
HEALTHY TAX BASE GROWTH: Access to the broad Dallas-Fort Worth (DFW) economy
and regional transportation network has led to strong taxable assessed
valuation (TAV) growth. Proximity to the DFW metroplex, coupled with the
city's ongoing development of infrastructure, position it for continuing
residential and commercial/industrial expansion, the realization of which
could lead to positive rating action.
HIGH OVERALL DEBT: High overall debt includes overlapping debt and reflects
the significant enrollment-based facility needs of the school districts
residing in the city. An above-average debt amortization rate contributes to
the city's high carrying costs, consisting of its debt service, pension and
other post-employment benefits (OPEB) contributions. The city's near term
capital needs are moderate.
SOUND DEBT SERVICE COVERAGE: The sales tax revenue bond ratings reflect ample
coverage of maximum annual debt service (MADS) from pledged sales tax
collections and sound legal protections.
Mansfield is located within the ninth largest metropolitan area in the nation,
home to more than a million residents within a 15-mile radius. The city's
population of nearly 60,000 has more than doubled since the 2000 census. A
significant amount of developable land remains within Mansfield's 38.6 square
mile land mass.
HIGH-GROWTH FORT WORTH COMMUNITY
Located in the southeastern portion of Tarrant County, the city is directly
connected to nearby DFW, the DFW International Airport and surrounding
communities by a robust and expanding transportation network. The city's five
industrial parks are home to a reported 115 industries employing 5,000
workers, with significant expansion plans recently announced by Klein Tools
(manufacturer of high-quality hand tools) and Mouser Electronics (a
Berkshire-Hathaway company and distributor of electronic parts).
A growing medical district is evidenced by Methodist Hospital's $180 million
commitment to facilities within the city, including $27 million of completed
expansions, a hospital opening in fiscal 2012, and future expansion over 22
acres. Additional new facilities were opened in fiscal 2012 by the Arlington
Orthopedic Associates and Women's Health Pavilion, with a third assisted
living/medical facility under development. Additionally, the city announced
that two hospitals (totaling an approximate $250 million investment) have been
slated for future development.
Fiscal 2012 building permit values increased 17% year over year led by new
commercial projects, including retail, restaurants, grocers, and medical
district expansions. Residential growth continues but remains well below
prerecession levels. The city reports 273 platted residential lots available
for development and an additional 537 available for potential future
development among its many master planned communities and subdivisions. Given
its infrastructure and proximity to the metroplex, the city is positioned for
significant growth, the resumption of which could lead to positive rating
SIZEABLE AND DIVERSE TAX BASE
The fiscal 2013 tax base of $5.1 billion is 62% residential, with a growing
commercial and industrial presence. TAV expanded by a compound annual growth
rate (CAGR) of 5.7% between fiscal 2006 and 2013 as new commercial development
compensated for softness in the residential market. Fitch anticipates the
magnitude of reported commercial development projects and industrial
expansions to bode well for continuing tax base growth in the near term. The
top ten taxpayers comprise a moderate 7.8% of fiscal 2012 TAV.
CONSISTENT FINANCIAL PERFORMANCE
The city generally outperforms the budget and maintains sound reserve levels
in compliance with its policy target (i.e. unrestricted general fund reserves
equal to 25% of the operating budget). A $1 million (2.9% of expenditures)
operating surplus net of transfers increased the fiscal 2011 general fund
unrestricted balance to a strong 24.8% of expenditures and transfers out.
Unaudited fiscal 2012 results report a $1.5 million operating surplus led by
strong sales tax and building permit activity, $650,000 of which will be
applied to land acquisition in connection with the city's historic downtown
revitalization project. Management projects continued modest revenue growth
and cost management to support structural balance and preserve the city's
reserves into the foreseeable future.
HIGH DEBT METRICS EXPECTED TO REMAIN ELEVATED
High overall debt equal to 10.4% of the city's property values incorporates
overlapping debt which includes significant debt issuance of rapidly growing
local school districts. The city's debt burden on the general fund is also
high at 25.5% of general fund spending and transfers out, reflecting the
infrastructure growth needs of the city and a rapid debt amortization rate
(70% retired in 10 years). Fitch anticipates elevated debt levels to persist
over the next five to 10 years in light of continuing growth pressures.
The city participates in the Texas Municipal Retirement System, with an
adequate fiscal 2011 funded position of 75% based on Fitch's more conservative
investment rate of 7%. The city provides OPEB to retirees for health insurance
and fully funds its annual required contribution each year; the city also
established an OPEB trust in 2008. The city's carrying costs, including debt
service, pension and OPEB contributions are considered high at 36.7% of fiscal
2011 general fund expenditures and transfers out.
SOUND SALES TAX REVENUE BOND COVERAGES
The bonds of EDC and PFDC are secured by a gross pledge of separate 1/2-cent
sales tax revenues. The PFDC is a 4B nonprofit corporation created in 1992
following the passage of a 1/2 of 1% sales tax. The EDC is a 4A corporation
that was formed in 1997 with the passage of a separate 1/2 of 1% sales tax.
The PFDC has focused on various parks and recreation projects since its
creation, while the EDC has helped attract business to the city through
location assistance and infrastructure improvements. In addition to sales tax
revenues, both corporations receive gas royalty monies that are applied to
their respective mission objectives.
MADS coverage is sound at 2.3x and 2.7x for PFDC and EDC, respectively, based
on fiscal 2011 sales tax revenues. Following 14.7% CAGR in the six years
preceding the recession, sales tax collections leveled out in fiscal 2009 and
2010 before registering a modest 1.6% gain in fiscal 2011. Management reports
a 7.7% increase in unaudited fiscal 2012 collections reflecting an improved
economy and the impact of an increasing number of new retail establishments.
Fiscal 2013 sales tax receipts are budgeted at a conservative 1% increase over
fiscal 2012 actuals.
The city has no near-term borrowing plans for EDC, which should help maintain
debt service coverage at healthy levels. Management reports a potential $3
million PFDC debt issue in fiscal 2015 or 2016, which debt will be layered
into outstanding debt so that the current MADS level will not change.
Legal provisions for both securities are adequate with a two-pronged
additional bonds test requiring gross revenues received by the corporations
during any 12 of the preceding 15 months to be 1.35x MADS and 1.5x average
annual debt service. The reserve requirement for each of these bonds will be
cash-funded to the IRS standard. Reserves historically have been funded with
FAVORABLE DEMOGRAPHIC PROFILE
A favorable demographic profile, notable park system and good community
services contribute to Mansfield's frequent ranking as a desirable city in the
U.S. The city's median household income is very high at 177% of the U.S.
average. An expanding employment base contributes to a low unemployment rate
of 6.0% for August 2012, below the state (7.0%) and national (8.2%) averages
for the same period.
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, and
the Municipal Advisory Council of Texas.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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