FITCH IBCA Assigns `AA' Rating to Fort Worth's COs.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 17, 2000

Fitch IBCA rates Fort Worth, TX's $44.4 million combination tax and revenue certificates of obligation, series 2000 and $1 million combination tax and revenue certificates of obligation (COs), series 2000A `AA'.

Both series of COs are scheduled for a competitive sale on Feb. 29. The COs are dated Feb. 15, 2000, and mature serially unless the initial purchaser designates one or more maturities as a term CO. At the city's option, series 2000 COs maturing on or after March 1, 2006, are subject to optional redemption beginning March 1, 2005, at par plus accrued interest to date of redemption.

Series 2000A COs maturing on or after March 1, 2011, are subject to optional redemption beginning March 1, 2010, at par plus accrued interest to date of redemption. In addition, Fitch IBCA has confirmed the `AA' ratings on the city's outstanding general purpose bonds and COs.

The Fort Worth-Arlington metropolitan statistical area (MSA) continues to expand. The city's diversification away from its historical reliance on defense-related manufacturing and the military has been highlighted by gains in the services, transportation, trade, and non-durable goods manufacturing sectors.

Financial operations remain sound, benefiting from steady growth in sales and property tax receipts, as well as conservative fiscal practices and strong management. Assessed valuations have recorded healthy annual increases since 1996, surpassing the pre-recessionary peak of 1988. Debt burden is moderate, and future borrowing plans are manageable, particularly considering the city's rapid amortization and declining debt service schedule. The medium term credit outlook is positive, particularly if economic diversification continues.

Historically, financial performance has been solid, even during the extended recessionary period of the late 1980s through the mid-1990s. Consistent tax base growth coupled with steady gains in sales tax receipts have enabled the city to maintain its financial position while reducing its property tax rate, which is high in comparison to other major Texas cities.

However, it should be noted that unlike some other major Texas cities, Fort Worth's general fund operations do not receive substantial utility system support. Also, the city's tax burden should be considered in light of the area's relatively low housing costs. Nevertheless, property tax relief, whenever possible, remains a city council priority.

For the close of fiscal 1998, the undesignated general fund balance represented 12% of operating revenues. Unaudited results for 1999 point to a $6 million draw down in the general fund, reflecting a combination of planned expenses and lower than budgeted revenues. The unreserved, undesignated fund balance is just below the city's 10% goal, although adjustments for late distribution of sales taxes results in a 10.3% balance. Year-to-date information shows sales taxes running considerably ahead of budget (partially due to the inclusion of 1999 receipts), with early projections indicating a fund balance at or near the targeted level.

Creating some uncertainty, the city's 1/2 cent sales tax for the crime district is up for renewal. Funds are used to fund equipment and vehicle purchases, expand crime-fighting programs, and to some extent, fund officer salaries. Given the city's success in garnering voter support in the past election and the reduction in the crime rate, passage is anticipated. However, in the event the ballot measure fails, officials continue to prudently build crime district reserves to sizable levels, enabling the city to absorb through attrition the officers in other funds, primarily the general fund.

Fort Worth's debt profile is manageable; the 3.9% debt to market value and $1,664 debt per capita ratios are moderate relative to its tax base and population and primarily due to substantial overlapping debt issuance by the 15 growing area school districts. Direct debt is a more modest at 1.2%. Debt service carrying charges are relatively high at 18% for fiscal 1998, but have improved significantly from prior year levels. Debt service carrying charges also reflect a rapid amortization schedule.

The city maintains a commercial paper program, which provides interim financing for projects and allows for bonding flexibility. As a result, the city does not anticipate issuing additional general obligation debt within the next year or more. Proceeds of the series 2000 COs will fund the first phase of improvements at the convention center. Debt service is expected to be self-supporting from a designated 2% of the hotel-motel tax and the city's share of a 5% short-term motor vehicle tax to be imposed on the new consolidated car rental facility at Dallas-Fort Worth International Airport. The facility is expected to be completed in March 2000.

The Fort Worth metropolitan area continues to grow and diversify. Historically, defense-related manufacturing and the military had played a large role in the economy. Prior year reductions in military spending and base consolidations impacted the area. However, other sectors, including trade, services, transportation, and non-durable goods manufacturing, have recorded significant growth, offsetting job losses. In particular, commercial development in and around the Alliance Airport continues at a strong pace.

Public and private efforts to revitalize portions of downtown Fort Worth have met with success, with the construction of new housing, retail stores, and performing arts complex. In addition, unlike other metroplex cities, Forth Worth is not land-locked, and maintains an extra-territorial jurisdiction area larger than the its own corporate limits. The city recently adopted a more aggressive annexation, providing additional potential for tax base growth.