AUSTIN, Texas - (Business Wire) Fitch Ratings affirms its 'A+' rating on La Porte, Texas' (the city) $15.3 million general obligation (GO) bonds and $22.4 million combination tax and revenue certificates of obligation. The Rating Outlook is Stable. The bonds are payable by an ad valorem tax, limited to $2.50 per taxable assessed valuation (TAV), levied against all taxable property within the city. The 'A+' rating reflects the city's historically solid financial performance, healthy general fund balances, affordable direct debt burden, and rapid principal amortization. Credit risks include tax base concentration in petrochemical and allied industries and an above-average property tax rate and overall debt burden. The city derives a portion of its operating revenues from industrial district contracts, through which industrial entities located outside the city limits make payments-in-lieu-of taxes (PILOTs) in return for a non-annexation agreement by the city. While these agreements result in property tax rates that likely are higher than they would be if the properties were annexed, the contracts have served as a valuable economic development tool for more than 50 years. The city's solid financial reserves serve to offset its exposure to tax base concentration and are key to preserving credit quality.
The city is located southeast of Houston, with portions lying along the Houston Ship Channel, Galveston Bay, and the Bayport Channel. With an estimated 2009 population of 35,518, the city is characterized by a combination of petrochemical industries and residential development.
The city's TAV has increased by an average annual 5.9% over the past five fiscal years, fueled in part by commercial development associated with the Port of Houston's new container facility and cruise ship terminal in nearby Bayport. Net of all protested values, fiscal 2010 AV does show a modest 3% decline and management expects slow TAV growth in the future. Including industrial district entities, petrochemical and allied industries account for seven of the top 10 taxpayers. Lyondell Bassell, a top 10 taxpayer, is currently in bankruptcy proceedings but remains operational; its PILOT to the city represented 13% of total PILOTs in fiscal 2009.
Industrial district fees or PILOTs, which have generated an average of $8.5 million in operating revenue over the past five fiscal years, are executed for rolling seven-year periods and were last renewed on Dec. 31, 2007. The city negotiated an increase in the base for the fees with industrial plant managers from 52% of TAV to 62%, generating an additional $2 million in fiscal 2009. Currently, 118 companies participate in industrial district contracts.
Financial performance has been sound historically as evidenced by unreserved fund balances equal to 28%-48% over the last seven fiscal years. In fiscal 2008, the city recorded nearly level financial results, posting an unreserved fund balance of $13.9 million, or approximately 42% of expenditures and transfers out. This total represented 153 days of expenditures, which exceeds the city's formal reserve policy of 90-120 days. Unaudited fiscal 2009 results point to nearly balanced results as well. The fiscal 2010 budget is balanced, conservatively assumes a 5% decline in sales tax revenues, and does not include $1.4 million in industrial district payments from Lyondell Bassell.
As part of its $46 million capital improvement plan, the city plans to issue $8.5 million of certificates of obligation in spring 2010 for various public improvements. Assuming modest 2% TAV growth, no total tax rate impact is anticipated. Direct debt levels are moderate. However, overall debt ratios, including local school district debt, are higher but still manageable. The principal amortization rate is favorable with 64% of principal retired in 10 years.
Income figures remain lower than those of the state and nation. Local unemployment rates, which historically were below regional and state averages, have increased notably and now are higher than the state average but below the national rate.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Jose Acosta, +1-512-215-3726 (Austin)
Rebecca Moses, +1-512-215-3739 (Austin)
