Fitch Ratings has assigned an 'AA' rating to the following Corpus
Christi, Texas bonds:
--$1.99 million combination tax and limited pledge revenue certificates
of obligation (COs), series 2016.
CO proceeds will fund various public facility improvements. The COs are
scheduled to sell via negotiation during the week of Dec. 7, 2015.
The Rating Outlook is Stable.
COs are payable from an annual property tax levy limited to $2.50 per
$100 taxable assessed value (TAV). The COs are subject to the city's
$0.68 per $100 of TAV tax rate limit for combined operations and
non-voter-approved debt service. The COs are additionally payable from a
subordinate lien on the surplus revenues of the city's solid waste
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: The city's favorable financial position is
supported by generally solid sales tax trends and management's prudent
REGIONAL ECONOMIC HUB: Much of the current commercial/industrial
development revolves around the large petrochemical industries,
refineries, associated oil/gas support industries, and shipping/port
activity that have traditionally anchored this regional employment
center. The 2014 plunge in oil prices is slowing the pace of economic
growth although several major projects are underway which may help
mitigate the short-term impact.
MIXED DEBT PROFILE: The fire fighters' pension plan remains poorly
funded despite the full funding of its annual pension cost (APC).
Pension funded levels for general city employees are adequate and the
city is making progress in attaining full funding of its actuarially
determined APC. Overall debt levels remain moderate, principal
amortization of direct debt is above average, and future debt needs are
RATING PARITY: Given the availability of taxing margin within the $0.68
per $100 AV limit, no rating distinction is made between voter-approved
and non-voter-approved tax supported debt. The total debt service rate
is currently $0.21.
BELOW-AVERAGE SOCIO-ECONOMIC INDICATORS: Area population growth trends
are modest and below those of the state; income and wealth indices are
below state and national levels.
MAINTENANCE OF FINANCIAL POSITION: Material deterioration of the city's
strong financial management practices and operating reserves would
produce negative rating pressure. The Stable Outlook reflects Fitch's
expectation that such shifts are unlikely.
Situated on the Gulf Coast, Corpus Christi is the eighth largest city in
Texas and serves as the regional economic center for a 12-county area.
The city's 2015 population is estimated at 325,477.
OIL PRICE COLLAPSE AFFECTING EMPLOYMENT; LARGE PROJECTS MAY MITIGATE
The impact of the 2014 oil price collapse is now starting to become
evident within the MSA's labor market. After posting steady employment
gains since 2010, MSA jobs declined by a modest 0.9% over the 12 months
ending September 2015. The job losses led to a slight uptick in the
MSA's unemployment rate, increasing to 5% in September 2015 from 4.9%
the year prior. This metric is modestly higher than the state and U.S.
averages of 4.5% and 4.8%, respectively, for the same period. Local
wealth levels are below average, although area cost of living is
The 2014 plunge in oil prices will likely affect the pace of economic
growth in the city over the medium term. Corpus Christi's economic base
includes a number of petrochemical interests, and economic activity in
recent years was driven by the city's proximity to the large and
productive Eagle Ford Shale oil/gas formation in neighboring counties.
While growth in other sectors (shipping, tourism, military, and higher
education) has reduced dependence on the energy sector, oil and gas
drilling remains a significant contributor to the regional economy.
Management reports various commercial/industrial projects underway or
planned, which generally will capitalize upon the area's traditional
strength in the energy sector and associated industries. Noteworthy
development includes the planned $14.5 billion Cheniere liquid natural
gas plant to be built adjacent to the Port of Corpus Christi (the port).
The plant will be one of the largest construction projects in the
Coastal Bend region, expected to add 2,500 construction jobs and 250
permanent jobs to the area. In addition, the Tianjin Pipe project (a
steel pipe mill) is projected to complete its $1 billion construction in
2016. It is estimated to be one of the largest Chinese investments in
the U.S. and will add 600 permanent jobs to the region.
The port ranks as the fifth largest in the nation and 44th in the world
based on tonnage. The Corpus Christi Army Depot (CCAD) is the largest
industrial employer in South Texas, and several U.S. Navy installations
are also located in the area. Tourism is an important component of the
economy, with Padre Island National Seashore and Mustang Island State
Park as leading area tourist attractions. Schlitterbahn, a major
waterpark operator, opened a $550 million waterpark and resort in summer
RECENT TAX BASE GAINS STRONG
The city's tax base is diverse with the top 10 taxpayers representing
only 5.3% of TAV for fiscal 2016. Tax base gains have historically been
solid, with a moderate 4% decline in fiscal 2011 followed by five years
of increasing gains. Taxable values grew by a strong 9.7% and 7.6% in
fiscal years 2015 and 2016, respectively, consistent with the improving
levels of economic activity in the area. However, Fitch expects future
AV growth to moderate should oil prices remain low.
POSITIVE FINANCIAL PERFORMANCE TRENDS
Operating performance in fiscal 2014 benefited from 14 months of sales
tax collections due to a mid-year change in the city's fiscal year end
from July 31 to Sept. 30. Calendar year 2014 sales tax collections grew
by 6.2% over 2013 due largely to the economic activity stemming from the
nearby Eagle Ford Shale and the city's key role in oil/gas shipping,
processing, and support industries.
The general fund posted a $1.3 million net operating surplus (0.5% of
spending) and a $50 million unrestricted fund balance in fiscal 2014. At
a solid 19.9% of spending, reserves are well above the city's 10% formal
policy. Changing the fiscal year end to Sept. 30 allows the city to base
its adopted budget on certified AV figures, eliminating the need for
budget revisions due to use of preliminary AV figures.
SALES TAXES FLATTEN IN FISCAL 2015
Preliminary fiscal 2015 results point to a modest $400 thousand (0.2% of
spending) net surplus despite a sales tax revenue shortfall attributed
to falling oil prices. Unaudited sales tax receipts remained flat
relative to the last 12 months of fiscal 2014, well below the aggressive
7.8% gain budgeted by the city. Structural balance is attributed to
expenditure savings from conservative budget assumptions and mid-year
ADOPTED BUDGET PROJECTS MODEST SALES TAX GAIN
The city's adopted fiscal 2016 budget is balanced using a more moderate
assumption of 1% sales tax growth from fiscal 2015 actual receipts. The
budget also incorporates the city's policy (initially adopted in fiscal
2015) to transfer 6% of general fund revenues (equal to $13.9 million)
to the street fund for maintenance. Management's multi-year forecast
through fiscal 2020 anticipates balanced operations that are supported
by projected moderate growth in property and sales taxes. If revenue
growth slows materially, Fitch expects the city to adjust its spending
to maintain balance.
MIXED DEBT PROFILE
Overall debt levels are moderate at 4.5% of fiscal 2016 market value and
$3,194 per capita, primarily due to debt of the large number of school
districts and the local community college. Payout of property
tax-supported debt is above average with 66% of principal retiring in 10
years. Principal amortization of the city's three dedicated sales tax
levy bond series is rapid at nearly 84% in 10 years. City officials do
not expect to additionally leverage any of the dedicated sales tax
levies for further debt issuance over the near term.
The CO offering will fund various facility improvements and will be
fully-supported by property tax revenues. No additional tax-supported
debt is anticipated within the next 12 months.
UNDERFUNDED ANNUAL PENSION COSTS
The city participates in the statewide, agent multiple-employer Texas
Municipal Retirement System (TMRS) for the majority of its employees.
Recent structural and actuarial changes to TMRS approved at the state
level have allowed for the restructuring of the system's funds that
boosted most participants' funded positions, including those of Corpus
Christi, but also required the pre-funding of updated service credits
and cost of living increases.
Although TMRS reports the city's funded ratio as a high 91% as of Dec.
31, 2014, the city's audit reported its funded position at 73.2% for the
same period. The difference is due to the city's more conservative
valuation basis that assumes certain pension benefits are annually
repeating rather than determined on an ad hoc basis as allowed by TMRS.
However, the city has not fully funded its annual pension cost (APC) on
this basis in recent years. The city does, however, pay at least the APC
based on TMRS assumptions. Starting with the fiscal 2015 budget, the
city is increasing its pension contributions by one percentage point of
payroll annually through fiscal 2019 in order to fully fund its APC.
The combined APC for TMRS and the city's poorly-funded single employer
fire fighters' pension plan totaled a moderate 8.7% of fiscal 2014
governmental spending. The combined unfunded liability of both plans was
1.5% of fiscal 2016 market value. The cost of other post-employment
benefits (OPEB; primarily retiree healthcare) is funded by the city on a
pay-go basis, and comprised less than 1% of fiscal 2014 spending. The
total carrying costs for debt service, pension, and OPEB equaled an
elevated 23.7% of governmental spending; carrying costs would have been
even higher, at 25.6%, if the pension payment had met the annual
required contribution (ARC).
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
In addition to the sources of information identified in the applicable
criteria specified below, this action was informed by information from
CreditScope, IHS Global Insight, and Zillow Group.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
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