Fitch Affirms 'BBB-' Rating on Robstown, Texas GO Bonds; Outlook to Negative.

AUSTIN, Texas -- Fitch Ratings affirms the 'BBB-' rating on Robstown, TX's (the city) approximately $1.9 million general obligation (GO) bonds and $1.3 million certificates of obligation (COs). The Rating Outlook is revised to Negative from Stable.

Fitch assigned an initial rating of 'BBB-' on the city's GO and COs in 2003 based on the city's improved financial position and management practices, renewed economic development efforts to increase taxable values and local employment, and limited future debt plans. Offsetting risks include a moderately high debt burden, limited tax rate flexibility, very low wealth levels, and high unemployment rate. However, financial margins have narrowed even further with the near depletion of the general fund balance associated with a one-time capital expenditure. The Negative Outlook reflects the deterioration in reserves and the need for the city to stabilize its financial position in the near term in order to maintain its current rating.

The city successfully re-established structural balance to general fund operations in fiscal 2003 with the recording of a $211,000 reserve representing 4.1% of expenditures and transfers out. The improvement in general fund reserves in fiscal 2003 reflected a wide range of financial management measures implemented to increase fiscal controls.

Subsequently, city officials approved a one-time expenditure of $150,000 to partially fund the construction of a Boys and Girls Club facility. As a result, fiscal 2004 general fund reserves fell to about $28,000, or 0.5% of spending. Unaudited fiscal 2005 figures point to a modest operating surplus, driven by growth in sales and property tax revenue, which would raise fund balance to about $50,000, or about 1% of expenditures and transfers out.

To restore its financial stability, the city plans to set aside revenue from a new payment in lieu of taxes (PILOT) agreement from a nearby industrial entity. In addition, area economic expansion has resulted in increased sales tax collections, which together with the PILOT payments would help restore reserve levels. Sales taxes are budgeted for a 4% increase in 2006, and year-to-date collections are reportedly running about 16% above the same period last year. Maintenance of the rating will likely be dependent on the success of the city's financial recovery plan, which ambitiously calls for a 20% fund balance goal within the next five years.

The city's tax base is limited but continues to record steady gains averaging 7.3% annually since 2002. The city posted a strong 13% increase for fiscal 2006. The city's tax base is primarily residential; however, a number of ongoing and planned commercial development will benefit Robstown's tax base, and ultimately, city sales tax collections. Some notable projects anticipated include the Nueces County Fairgrounds Complex Phase 2, a $20 million Federal Detention Center (275 jobs), and a $4 million Army Reserve storage facility (200 jobs).

Robstown's future capital needs will be financed with sales tax bonds issued by Robstown Improvement Development Corporation. Including a proposed $1.6 million sales tax bond issue, overall debt levels are above average after adjusting for significant state support on the area school district's debt. The city's rapid debt amortization, with 88% paid in 10 years, is a positive credit feature.

Robstown is located in Nueces County about 15 miles northwest of downtown Corpus Christi. The 2004 census population estimate of 12,600 has been stagnant over the last decade. Wealth indicators trail national and state levels and taxable assessed value per capita is a modest $13,358 per capita. Due to its proximity to the area's petroleum and chemical refineries, many Robstown residents commute to Corpus Christi (GO bonds rated 'AA-' by Fitch) for employment. In order to offset the city's limited economy Robstown has promoted its strategic location at the intersection of major gulf coast surface, port, and rail corridors.

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