Fitch Affirms Longview, TX's $58MM LTGOs at 'AA'; Outlook Stable
NEW YORK -- May 30, 2013
Fitch Ratings has affirmed the following Longview, Texas (the city) bonds:
--$58.3 million limited tax general obligation (LTGO) bonds at 'AA'.
The Rating Outlook is Stable.
The LTGO bonds are secured by an ad valorem tax levied on all taxable property
within the city, limited to $2.50 per $100 taxable assessed valuation (TAV).
KEY RATING DRIVERS
DIVERSIFYING ECONOMY: Retail and healthcare concerns have diversified the
economy, which still reflects the influence of the oil and gas-related
industries. Employment indicators are favorable and wealth levels are below
the national average.
WELL-MAINTAINED FINANCIAL OPERATIONS: Prudent financial management has
produced ample reserves, high liquidity, and positive operating margins.
MIXED DEBT PROFILE: Elevated overall debt levels, due primarily to substantial
overlapping debt, contrast with the low direct debt. Long-term obligations do
not pressure the city.
STABLE CREDIT PROFILE: The rating is sensitive to shifts in fundamental credit
characteristics including the city's strong financial management practices and
the somewhat limited economy. The Stable Outlook reflects Fitch's expectation
that such shifts are unlikely.
The city of Longview is located in the northeastern part of Texas, 120 miles
east of Dallas and 210 miles north of Houston, next to one of the largest oil
fields in the world. The population of 81,366 has experienced average growth
over the past decade.
SOMEWHAT NARROW ECONOMY DIVERSIFYING AWAY FROM FOSSIL FUELS
The city has become a major regional retail and healthcare hub over the past
two decades, although other sectors have a more limited presence. Three
medical centers and clinics, employing over 4,450 individuals, are among the
city's top employers as is Walmart, Inc. (1,207 employees). Joy Global Inc.,
formerly LeTourneau, Inc., an oilfield equipment producer and large employer
(1,075 employees), serves as an indication of the economic influence that oil
and gas production continues to exert.
The city's stable tax base dipped only once since the recession, a minimal
0.3% drop in fiscal 2012. Fitch is comfortable with management's conservative
projection of 1% - 2% AV improvement in the near term, which would be in line
with historical results. The top 10 taxpayers have moderately low
concentration, at 11.2% of taxable assessed value, with healthcare and retail
adding some diversity to a list that includes fossil fuel related concerns.
Employment metrics are generally positive. The unemployment rate trends below
those of the state and the nation, as evidenced by the March 2013 unemployment
rate of 5.3%. Employment growth was favorable during the recession, with only
one year evidencing a modest decline, although employment has been flat over
the past year. Wealth levels are about 80% of the nation's.
HEALTHY FINANCIAL FLEXIBILITY
Ample reserves, high liquidity, structural balance, and revenue raising
capacity characterize the city's strong financial position. Operating margins
are routinely positive and have resulted in healthy reserves, with the city
utilizing fund balance drawdowns to fund capital or other one-time projects.
The city has demonstrated the willingness to increase millage for debt
service, and there is substantial capacity to increase the tax rate further,
if required. Fitch believes that the city's conservative management could
implement additional expenditure reductions, if required.
Fiscal 2012 revenues performed positively to the budget, with increased
property taxes and fines offsetting decreased sales taxes, while expenditures
were below budget. The $1.9 million fund balance drawdown in fiscal 2012,
equal to 3.2% of spending was directed towards two capital projects.
Unrestricted fund balance, the sum of committed, assigned, and unassigned per
GASB54, was a high 33% of spending.
The fiscal 2013 $60.4 million general fund budget represents a 4.3% decrease
from that of the prior year, since the city did not appropriate fund balance,
in contrast to the fiscal 2012 budget. Revenue projections indicate a modest
increase in property tax collections, somewhat offset by a small reduction in
sales tax collections. Fitch believes that budgeting assumptions are
realistic. The city has sufficient financial flexibility to incorporate a 3%
merit-based pay increase for employees. City officials anticipate ending the
year flat on a GAAP basis. A possible planned drawdown in the intermediate
term consists of $2.5 million in fiscal 2015 to fund a capital project. Fitch
expects out-year reserve levels to remain ample.
MIXED DEBT PROFILE
The overall debt burden is above average, at $4,287 per capita and 5.8% of
market value. Overlapping debt of the county and school districts represents a
large proportion of the debt levels. Direct debt is low at $765 per capita and
1% of market value. The rapid amortization, at 72.2% of principal retired
within 10 years, contributes to a slightly elevated debt service cost equal at
10.8% of governmental spending, excluding capital funds.
Future debt plans to fund the $100.6 million fiscal 2013 - 2017 Capital
Improvement Plan consist primarily of $31.3 million of authorized and unissued
street and road improvement bonds. Fitch does not anticipate a substantive
change in the city's debt burden in the intermediate term.
City employees excluding fire fighters participate in the Texas Municipal
Retirement System (TMRS). Firefighters participate in the Longview Firemen's
Relief and Retirement Plan (LFRRP), which was established as a separate trust
under city auspices. Since at least fiscal 2010, the city has contributed the
full actuarial amount to TMRS. However, the city is not contributing the
actuarially calculated ARC for LFRRP, since the required contribution is
statutorily determined. For fiscal 2012, combined city contributions to the
two pension plans totaled $5.5 million, below the $6.2 million actuarially
determined annual required contribution (ARC). Fitch posits that full ARC
payment, which would have equaled 8% of governmental spending exclusive of the
capital projects fund, would not pressure the credit.
A recent restructuring of the TMRS has benefitted the city, since the ARC will
decrease by an estimated 3%. In addition, it increased the city's funded ratio
to a sound 91%. The city has budgeted in fiscal 2013 an additional $110,000
contribution to the LFRRP. Although it will not meet the actuarial ARC, it is
a first step in addressing the low funded ratio of 52%, which Fitch estimates
at 47% when reducing the assumed rate of return to a more conservative 7%.
OPEB requirements are modest. The city's fiscal 2012 contribution of $1
million equaled 1.3% of spending. Total carrying costs, consisting of debt
service payments and the pension and OPEB ARCs, equal a manageable 21.1% of
governmental spending, exclusive of the capital projects fund.
Additional information is available at 'www.fitchratings.com'.
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, and the National Association of Realtors.
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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Barbara Ruth Rosenberg, +1 212-908-0731
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Rebecca Meyer, +1 512-215-3733
Arlene Bohner, +1 212-908-0554
Elizabeth Fogerty, +1 212-908-0526
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