Fitch Affirms Aransas County Navigation District, TX GO Bonds at 'AA-'; Outlook Stable
Fitch Ratings has affirmed the 'AA-' on the following Aransas County Navigation District No. 1, TX bonds:
--$5.4 million unlimited tax bonds, series 2007;
The Rating Outlook is Stable.
The bonds are secured by an unlimited annual property tax levy.
KEY RATING DRIVERS:
LARGE OPERATING MARGINS: The district's financial profile remains positive, characterized by large annual operating margins which have resulted in considerable fund balances and ample liquidity.
MODERATE DEBT LEVELS: The district's limited capital needs will be funded with current resources, preserving its moderate overall debt position and average principal pay out rate.
SLUGGISH TAX BASE: Property value gains have flattened but Fitch believes that the renewed construction of waterfront and vacation homes should stabilize or increase the district's taxable values. Prospects for restored growth are positive given the area's popularity for recreational fishing, sailing, and bird-watching.
RISKS OF COASTAL ECONOMY: The local economy is subject to some cyclicality with economic dependency on tourism as well as coastal vulnerability to storm/hurricane disasters.
DEPLETION OF LARGE RESERVES: The maintenance of large financial reserves remains key to credit quality to mitigate the potential for weather-related damages to the district's principal assets.
The boundaries of the district are primarily coterminous with Aransas County (GOs rated 'AA-' by Fitch), located on the Gulf Coast approximately 30 miles northeast of the city of Corpus Christi. The district oversees three local harbors: Cove Harbor, Fulton Harbor, and Rockport Harbor. The Rockport Harbor supports much of the area's recreational activities.
STAGNANT TAX BASE BUT AV PER CAPITA REMAINS HIGH
Aransas County's present population of just under 25,000 represents an increase of roughly 10% since the 2000 census. Since the recent recession, the county's taxable assessed value (TAV) has remained stagnant but market value per capita remains high at over $140,000. The county unemployment rate declined over the 12 months ending December 2012 to a low 5.7% due primarily to contraction of the county's labor force. Wealth and income indicators are below state and national averages. The area's appeal to fishermen, beachgoers, and birdwatchers has encouraged ongoing development of the tourism industry.
LARGE ANNUAL OPERATING MARGINS BENEFIT LIQUIDITY
District operations are supported by property taxes and harbor rentals. Financial performance remains solid despite recent sluggish TAV growth as board members have consistently adopted effective O&M tax rates to fund operations. With a 2013 O&M rate of $0.039 per $100 AV, ample taxing margin remains below the $0.10 per $100 TAV cap.
The district produced fiscal 2011 net revenues before capital contributions of $740,000, resulting in a typically large operating margin of 53%. Furthermore, its liquidity position is solid, with unrestricted cash and investments equal to almost three years of operating expenses. District management projects another operating surplus will be recorded for 2012 which Fitch views as reasonable given its history of conservative budgeting. The 2013 budget is funded at the effective O&M tax rate and projects a modest increase in net assets. Fitch has noted that completion of the district's audits has been late by three to five months in recent years.
MODERATE OVERALL DEBT LEVELS
Overall debt ratios for the district are considered moderate by Fitch at $4,472 per capita and 3.2% of market value. Principal payout is just above average with 61% repaid within ten years. The series 2007 bonds are the district's only debt obligation. Voters approved these bonds for building and repairs of Rockport Harbor's bulkheads and breakwater structures. Due to delays in securing a permit from the US Corp of Engineers for the breakwater project, almost one-third of the bond proceeds were not spent by the end of 2011. The breakwater project was subsequently completed in July 2012.
LIMITED DEBT PLANS; WELL-FUNDED PENSION
The district currently has no plans for additional general obligation debt, planning instead to finance its modest future capital needs on a pay-go basis. Using Fitch's 7% rate of return on investment assumption, the district's pension was well funded at 82.8% as of Dec. 31, 2011. In regards to the 2011 audit, Fitch notes that the district is now in compliance with GASB 45 which requires the reporting of its liability for other post-employment benefits (OPEB).
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 the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.
Applicable Criteria and Related Research
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
Elizabeth Fogerty, +1-212-908-0526 (New York)