Fitch Rates Alamo, Texas' 2004 Tax & Revenue COs 'BBB'.

AUSTIN -- Fitch Ratings assigns a 'BBB' rating to the City of Alamo, Texas' (the city) $4.3 million combination tax and limited pledge revenue certificates of obligation (COs), series 2004 (the certificates). Fitch also affirms the 'BBB' rating on the city's outstanding $4.6 million combination tax and revenue COs. The Rating Outlook is Stable.

The certificates are scheduled to be sold via negotiated sale on Sept. 21 by First Southwest Company. The certificates will be general obligations of the city, payable from a direct, continuing ad valorem tax, whose rate is limited to $2.50 per $100 assessed valuation, levied against all taxable property within the city, and a limited pledge not to exceed $1,000 of net revenues of the city's water and sewer district. The proceeds from the sale of the certificates will be used to pay contractual obligations incurred for the construction or purchase of various municipal projects and equipment.

The 'BBB' rating reflects the city's solid financial performance aided by growing taxable values and sales tax receipts, and a healthy mix of revenues flowing into the general fund and limited future debt plans. Offsetting risks include a small but growing tax base, high unemployment levels, and limited vulnerability to economic fluctuations in Mexico.

Located in the southern part of the Rio Grande Valley, the City of Alamo lies six miles east of McAllen in Hidalgo County. The city's 2004 population is 15,500 and has grown at an average annual growth rate of just under 6% since 1990. The county's population totaled nearly 570,000 in the 2000 census. The county's economy is based on agriculture, tourism, and international trade.

Typical of many border communities, wealth levels are very low as evidenced by per capita personal incomes equal to only 47% of state and national averages in 2003. Unemployment levels are also very high, totaling over 12% for July 2004, due in part to the substantial presence of seasonal migrant farm workers who remain unemployed after returning from jobs in other parts of the country. County unemployment levels have declined significantly, however, from levels totaling nearly 20% in 1995.

The city's direct debt burden, including the current offering, is moderate at $471 per capita and 2.3% of TAV. The city has no additional debt planned. The inclusion of overlapping debt, comprised mostly of local school district debt, increases the overall debt burden to $1,530 per capita and a high 7.3% of taxable assessed value. The principal payout rate is slightly above average at 57% in ten years.

Total city sales tax collections, which include a 1% city sales and use tax, 1/2% sales tax for property tax relief, and a 1/2% sales tax for economic development, have increased by a compound average annual rate of 55% since 1998. Total city sales tax collections in 2004 are approximately $1.8 million, a 54% increase over prior year levels, due in large part to the opening of a WalMart Supercenter and an H.E.B. food center. The city's tax base has experienced growth averaging 10% annually over the past five years.

The city has a history of strong financial reserves as evidenced by general fund balances totaling 20%-43% of expenses and transfers out since fiscal 1998. The total general fund balance in fiscal 2003 was $1.9 million, or nearly 40% of expenditures and transfers out. Cash and investments were nearly $1.7 million, up from $1.2 million in fiscal 2002. Major general fund revenue sources include property taxes at (26%), charges for services (18%) and sales taxes (17%). The projected general fund balance for the fiscal 2004 year end is $2.1 million.