Fitch Rates Garland, Texas' $68.2MM GO Rfdg Bonds 'AA+'; Outlook Stable.

AUSTIN, Texas -- Fitch has assigned an 'AA+' rating to the $68.2 million general obligation (GO) refunding bonds, series 2007A, of Garland, Texas (the city). Additionally, the city's 'AA+' rating on $179.2 million of GO bonds and $107.9 million of certificates of obligation outstanding (post refunding) is affirmed. The Rating Outlook is Stable.

The bonds are scheduled to sell on Feb. 20, 2007 via negotiation to a syndicate led by Banc of America Securities LLC. The bonds are secured by a continuing direct ad valorem tax levied against all taxable property within the city, subject to a $2.50 per $100 assessed valuation limitation prescribed by law. Proceeds will be used to refund certain outstanding obligations for debt service savings and to pay costs of issuance.

The 'AA+' rating reflects the city's exemplary fiscal management, historically strong financial performance, moderate debt burden and sound local economy. Despite slowing population and taxable assessed valuation (TAV) growth resulting from a maturing economy, revenue growth has received a boost from several prominent retail projects that recently opened. This additional revenue has complemented recent cost-saving measures implemented by the city.

Proactive fiscal management, including ongoing forecasting and planning efforts and regular reporting, played a critical role when the city experienced slower revenue growth and escalating operating costs in fiscal 2004. Despite significant cost cutting efforts, including the first layoffs of city employees, the city reported a $2.7 million drawdown in the general fund balance, but quickly rebounded in fiscal 2005 ending the year with a $2.2 million surplus. Unaudited results for fiscal 2006 reflect another $7.2 million surplus, ending the year with $20.4 million in general fund reserves, equivalent to 65 days of expenditures and transfers out, and comfortably exceeding the city's minimum target of 30 days. Fiscal 2006 results were significantly assisted by increased sales tax receipts spurred by the opening of the Firewheel Town Center, a one million square-foot shopping mall, as well as, operating expenditures that were $1.9 million below budget. The adopted fiscal 2007 budget is balanced.

As the city nears build-out, which is expected in 2012, taxable assessed valuation (TAV) growth has slowed to a compound annual average of 3.5% between fiscal 2003 and 2007 compared with 7% annual growth experienced between fiscal 1999 and 2003. Garland benefited from the completion of the shopping center and additional residential development on the northern part of the city in fiscal 2007 with TAV growth of 7% over the previous year. Slowing TAV growth and mounting spending pressures led the city to respond with modest tax rate increases totaling $0.0375 per $100 of TAV over the last two years.

Garland's debt levels are moderate. Self-supporting debt of the city - primarily from the electric, water, and wastewater utilities - represents about 40% of total GO debt, thereby substantially reducing the impact on the city's debt service tax rate. The city's five-year capital improvement plan (CIP) totals $198.8 million and includes funding for streets, economic development, parks, public safety, as well as, public works projects. Less than 25% of the projects are expected to be funded with tax-supported debt. After taking into consideration, the scheduled debt retirements, the net increase in outstanding tax supported debt is approximately $31.3 million over the next five years. The city's amortization rate is above average with more than 65% of outstanding tax-supported debt retired in ten years. City officials anticipate returning to the market this spring with both tax and revenue supported new money offerings.

Garland has benefited from its location within the Dallas-Fort Worth metropolitan area. After doubling in size from 1970-1990, the city's population increased a more manageable 23% from 1990-2005. Manufacturing and distribution remain the primary economic engines for the city. According to the city, 550 manufacturing companies presently operate in the city, employing an estimated 17,000 persons. The city's industrial market is the second largest in the Dallas-Fort Worth metroplex. The unemployment rate in Garland, 4.2% at December 2006, has retreated from recessionary highs and approximates regional, state and national averages. Local wealth levels, as measured by per capita buying income and median household income, approximate both state and national averages.

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