Fitch Rates Flower Mound, TX GOs 'AAA'; Outlook Stable

Fitch Ratings has assigned a rating of 'AAA' to the following obligations of the town of Flower Mound, Texas (the town):--$20.02 million general obligation refunding bonds series 2016.The GOs are expected to price via negotiation the week of April 4, pending market conditions. Proceeds will be used to refund outstanding obligations for savings.Fitch currently rates the town's $123.2 million in outstanding limited tax obligations, consisting of GOs and certificates of obligation (COs) 'AAA'.The Rating Outlook is Stable.The limited tax obligations (GOs and COs) are payable from an ad valorem tax levied on all taxable property within the town, limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally secured by a nominal pledge of subordinate net revenues (limited in amount to $1,000) from the town's water and wastewater system.CONSISTENT FINANCIAL PERFORMANCE: The town's consistent financial performance has contributed to healthy reserves in excess of its policy target. Dedicated funding sources, including voter-approved sales taxes, provide additional funding for general government needs and contribute to a relatively low ad valorem tax rate.STRATEGIC LOCATION; STRONG DEMOGRAPHICS: The town lies on Grapevine Lake within close proximity to the Dallas-Fort Worth (DFW) airport. Low unemployment reflects access to the DFW job market and an expanding local employment base. Income, wealth, and education attainment levels are high.SOUND TAX BASE GROWTH: The largely residential tax base performed well during the recession. Accelerated growth over the recent past reflects a pick-up in new commercial, industrial and residential development and a rise in home prices. Fitch anticipates these trends to continue based on current and planned activity levels.MODERATE DEBT PROFILE: A slightly elevated overall debt burden results from overlapping debt of local school districts. The town's carrying costs (annual debt service, pension and other post-employment benefit (OPEB) contributions), are moderate and incorporates a rapid debt amortization rate. New debt plans are modest. Pensions are well-funded.CREDIT PROFILE: The rating is sensitive to maintenance of a strong financial profile and manageable debt burden consistent with the town's 'AAA' rating.The town of Flower Mound, population of about 69,000, is located 28 miles northwest of downtown Dallas and within three miles of the DFW airport.STABLE LOCAL ECONOMY WITH GROWTH PROSPECTSFlower Mound has transitioned from a bedroom community to an increasingly diverse economy, benefitting from its proximity to the DFW metroplex and airport. The tax base is composed primarily of high-end residential, as well as commercial and industrial properties, and is without concentration. Median household income represents 233%, and per capita money income 163% of the U.S. averages, respectively. Levels of educational attainment are also significantly higher than the U.S. average, positioning the town for ongoing growth and prosperity.Taxable assessed value (TAV) has grown by 7.8% on average over the past four fiscal years, fueled by robust commercial development, corporate relocations/expansions, retail/restaurant additions and rising property values. Fitch anticipates the continuation of near term TAV growth based on recently announced corporate expansions and development currently underway, including the Town's first hotel scheduled to open in the first quarter of 2017. Fiscal 2016 market value per capita is a high $140,000.The town's unemployment rate is a low 3.0% as of Jan. 2016, reflecting access to the broad regional job market and an increasing local employment base. Large employers include governmental, school district, medical sector, manufacturing and retail concerns.CONSISTENT PERFORMANCE BUILDS HEALTHY RESERVESThe town's diverse general fund revenue stream consists of property taxes (50% of total revenues), sales taxes (21%), franchise and other taxes (12%), charges for services, and fees. Other dedicated funding sources such as a 0.25%% economic development additional sales tax and a 0.25% additional sales tax for street maintenance mitigate operating and capital pressure on the general and debt service funds; the low $.439 per $100 of TAV ad valorem tax rate is well below the $2.50 limit.Long-term planning and cost monitoring help the town to maintain a strong financial position, evidenced by healthy reserves in excess of policy targets. The town's fund balance policy targets a minimum 15% of general fund budgeted operating expenditures. A healthy fiscal 2015 unrestricted general fund balance of $16.6 million (32.3% of spending) reflects a consistent trend of strong revenue growth. Officials project a year-end fiscal 2016 unrestricted general fund balance of $13.5 million (24% of spending) incorporating budgeted application of reserves for capital and nonrecurring expenditures.MODERATE DEBT PROFILE AND WELL-FUNDED PENSIONSOverall debt is moderate at 4.9% of market value. The town's fiscal 2016 general fund five-year capital plan is manageable at about $73.8 million. Capital plan funding sources include dedicated sales taxes, impact fees, developer agreements, tax increment reinvestment zone (TIRZ) monies, and grants. The plan includes modest new debt issuance.The city participates in the Texas Municipal Retirement System, an agent multiple-employer defined benefit plan. Under GASB Statement 68, the city reports a fiscal 2015 net pension liability (NPL) of $5.1 million, with fiduciary assets covering 94.8% of total pension liabilities at the plan's 7% investment return assumption. The NPL of the plan represents a very small 0.1% of the city's fiscal 2015 market value. Carrying costs including annual debt service, pension and other post-employment benefit contributions are a moderate 18.5% of fiscal 2015 governmental spending and incorporate a rapid amortization rate.Additional information is available at 'www.fitchratings.com'.Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published early in the second quarter of 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, Lumesis, and The Texas Municipal Advisory Council.Applicable CriteriaExposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875108Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314Additional DisclosuresSolicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001783Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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