Fitch Rates Plano, TX's GOs 'AAA'; Outlook Stable
AUSTIN, Texas -- February 21, 2013
Fitch Ratings assigns an 'AAA' rating to the following Plano, Texas (the city)
general obligation (GO) bonds:
--$63 million limited tax general obligation (LTGO) refunding and improvement
bonds, series 2013.
The bonds are scheduled to sell via negotiation on March 5.
Proceeds will be used for street, parks, library, and public safety
improvements, and to refund certain outstanding bonds for level interest cost
savings from 2013-2026.
In addition, Fitch affirms its 'AAA' rating on the following outstanding debt
of the city:
--$299.4 million in LTGOs;
--$11.5 million in certificates of obligation (COs);
--$13.7 million in tax notes.
The Rating Outlook is Stable.
The bonds and outstanding LTGOs, COs, and tax notes are secured by a limited
ad valorem tax pledge of $2.50 per $100 of taxable assessed valuation (TAV),
levied against all taxable property within the city. The COs are further
secured by a de minimus limited pledge (not to exceed $1,000) of surplus net
revenues of the city's waterworks and sewer system.
KEY RATING DRIVERS
DIVERSE, AFFLUENT RESOURCE BASE: The city benefits from a diverse corporate
base, proactive economic development program, and prominence in the broad and
resilient Dallas-Fort Worth (DFW) economy. Residents are affluent and
WELL-MANAGED FINANCES: Sound management practices and policies have sustained
the city's strong financial profile and proactive approach to funding
operational, economic development, and capital needs.
AMPLE RESERVES AND FLEXIBILITY: Operating reserves and liquidity provide good
fiscal cushion. Additional flexibility is provided by the presence of sizable
capital reserves and a portion of the tax rate earmarked for discretionary
MODERATE DEBT BURDEN: The city's debt burden is manageable with high
per-capita debt offset by the high-income levels. Future debt issuance plans
should be easily managed given the currently rapid pace of debt retirement.
The rating is sensitive to shifts in fundamental credit characteristics
including the city's strong financial management practices. The Stable Outlook
reflects Fitch's expectation that such shifts are highly unlikely.
Plano is a wealthy and mature suburb located 20 miles north of Dallas with a
population of approximately 260,000.
STRONG LOCAL ECONOMY WITH EXCELLENT DEMOGRAPHICS
Plano is one of the premier commercial centers and residential suburbs of the
extensive Dallas-Fort Worth economy. The city's economy is diverse and serves
as corporate and/or regional headquarters for a number of companies, including
HP Enterprise Services, JCPenney, PepsiCo's Frito-Lay North American division,
Alcatel-Lucent, Capital One Auto Finance, and Dr. Pepper Snapple Group.
The city actively engages in economic development efforts to attract new
businesses and the highly-educated population helps strengthen the city's
employment profile. The percentage of residents with an advanced degree is
nearly twice the national average. Wealth levels are also very high, with per
capita personal income at 147% of the national average.
The city, like the region, continues to outpace the nation in job growth.
Plano's December 2012 unemployment rate improved to 5.3% from 6% as employment
gains outpaced labor-force gains, which compares favorably to the state (6%)
and national averages (7.6%), respectively.
JCPenney, the city's second largest taxpayer (0.7% of TAV) and fourth largest
employer, has made recent layoffs and continues to adjust its business
strategy to combat poor margins. The near-term outlook for this retailer
remains uncertain but Fitch believes the impact of further layoffs and
down-sizing would not have significant credit implications given the diversity
of Plano's economy and taxing base.
HEALTHY HOUSING MARKET/COMMERCIAL DEVELOPMENT SUPPORT TAV GAINS
TAV climbed 2.5% in fiscal 2013, which marks the second consecutive year of
tax base gains since slight contraction resulting from lower commercial and
residential valuations. Per-capita market value remains high at $120,000 and
the housing market is stable. Zillow home prices show only a 5% peak-to-trough
decline from 2007-2009 and current home prices have climbed to 98.5% of the
pre-recession peak. Commercial development is also continuing and existing
companies (Capital One and Ericsson) are expanding their corporate campuses.
Fitch believes prospects for continued tax base growth are positive.
STRONG FINANCIAL MANAGEMENT PRACTICES AND RESULTS
Conservative budgeting, interim reporting, and forecasting practices are a
hallmark of the city's financial management, and this approach has led to
results that consistently outperform budget projections. Significant budget
flexibility is apparent through the annually large operating transfers to a
capital reserve fund (5% of spending since fiscal 2008), which could be
reduced, deferred, or eliminated if necessary. In addition, 4% of the tax rate
is earmarked for economic development purposes and could be re-directed by the
city council to general operations.
Management successfully navigated slight revenue pressures in fiscal years
2008-2010 with spending reductions while prudently continuing the transfers to
the capital reserve fund. Fund balance during this period declined slightly by
7%. However, strong growth in property taxes and sales taxes, the two leading
sources of operating revenues, as well as continued conservative budgeting
yielded positive margins in fiscal years 2011 and 2012 totaling 1.7% and 3.9%
of spending, respectively.
Fiscal 2012 results were aided by a one-time catch-up sales tax payment of
$3.2 million and conservative expenditure budget. The unrestricted general
fund balance climbed to $52.7 million or 25% of spending and year-end
liquidity improved to cover current liabilities 6.3x.
The fiscal 2013 $230.7 million general fund budget increases spending 6.3%
from the 2012 budget, restoring some city services, adding a net 26 positions
to the budget, and providing recurring pay raise to civil service and
non-civil service personnel. Commensurate with past budgets, the city
appropriated fund balance above its policy floor of 30-days of expenditures
for capital and other non-recurring items.
The budget conservatively estimates sales taxes at 88% of fiscal 2012 actual
collections (net of the one-time payment in fiscal 2012). Given the positive
year-to-date trends and prior-year performance, Fitch expects the city will
again significantly outperform the forecast draw-down. The presence of $44.7
million of unrestricted funds in the capital reserve fund further enhances the
city's strong fiscal profile.
MODERATE DEBT BURDEN AND WELL-FUNDED PENSIONS
The city's overall debt ratios are moderate to high at 4.6% of market value
and $5,463 per capita. The high per-capita debt burden is largely due to
overlapping school district debt, and this concern is mitigated by residents'
high income levels. Amortization of tax-supported debt is rapid at 74% of
principal retired in 10 years and all repaid in 20 years.
The city actively maintains a comprehensive capital improvement program. After
this issuance, officials plan to issue $87 million of remaining GO
authorization over the next four years and seek additional GO authorization
for $98.3 million in a May 2013 bond election. The estimated tax rate impact
from this additional debt would be a nominal 1.3% increase due the rapid
retirement of existing debt. Debt issuance will also be supplemented by
continued pay-go capital spending.
Employee pension benefits are substantially provided through the city's
participation in the Texas Municipal Retirement System (TMRS), an
agent-multiple employer plan. The city also maintains a single-employer
Retirement Security Plan (RSP) for employees in lieu of participation in
federal social security. The annual required contributions (ARC) for both
plans are consistently funded and together consumed 9.3% of fiscal 2012
governmental fund spending. Fitch considers both pension plans well-funded,
with TMRS at 83.4% and RSP at 97.2% as of fiscal 2012 year-end using an
adjusted 7% investment return.
Unfunded liabilities for other post-employment benefits (OPEB) are a nominal
0.1% of market value and the city pro-actively established an OPEB trust in
fiscal 2008. Combined fixed costs for debt service and pension/OPEB ARCs
totaled a slightly elevated 27.5% of governmental fund spending but this is
mostly a result of the higher annual debt cost from rapid amortization.
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, National Association of Realtors, Zillow.com, and
Texas Municipal Advisory Council.
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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