Fitch Rates San Angelo, Texas $2.5MM Ctfs of Obligation 'AA-'.

AUSTIN, Texas -- Fitch Ratings assigns its 'AA-' rating to San Angelo, Texas' (the city) $2.5 million combination tax and limited surplus revenue certificates of obligation (COs), series 2006. In addition, Fitch affirms the 'AA-' rating on the city's outstanding $3.4 million general obligation bonds and $45.2 million COs. The current offering is expected to price Sept. 18 via negotiation through A.G. Edwards & Sons, Inc. The Rating Outlook is Stable.

The COs are direct obligations of the city, payable from and secured by the proceeds of an ad valorem tax levied within the limits prescribed by law against all taxable property in the city. In addition, the COs are secured by a pledge of surplus net revenue of the city's solid waste management system. Proceeds will be used to pay contractual obligations for constructing, installing, and equipping gas flare facilities for the city's sanitary landfill and to pay consultant fees in connection with such projects.

The 'AA-' rating reflects the City of San Angelo's continued strong financial performance and steady economic growth. Continued tax base and sales tax growth remains likely given the city's relatively diverse economy and its prominence as a regional hub. While the city has not adopted a formalized capital improvement plan, future borrowing needs appear manageable, and the city maintains a policy of rapid debt amortization for tax-supported debt. Property tax rates are higher than those of other regional cities but have remained relatively stable over the past several years.

The city, which has a 2006 estimated population of about 90,800, is located in the western-central portion of Texas. The city's economy is stable and is centered around agriculture, education, medicine, and manufacturing. In addition, there is a substantial military presence at nearby Goodfellow Air Force Base.

General fund financial reserves remain sound despite modest drawdowns in fiscals 2004 and 2005 of around $420,000; unreserved and undesignated balances for these years equaled nearly 20%, above the city's informal two-month policy. For fiscal 2006 the city budgeted a modest deficit of around $60,000, but preliminary forecasts point to a surplus of around $1 million for the year. Initial estimates for the fiscal 2007 budget anticipate roughly balanced operations with little change in personnel staff or capital outlays.

Growth in taxable assessed values (TAV) has gradually accelerated in recent years, and for fiscal 2007 the TAV increased an additional 9% as the city has experienced continued residential and commercial construction. Sales taxes, while being more volatile, performed well during the recent economic downturn, experiencing only a modest 2% decline in fiscal 2003. As consumer spending has increased in subsequent years, collections have rebounded, and for fiscal 2006 the city expects to outpace budget estimates.

Overall debt levels are modest at 2% of the TAV and $624 per capita, including state support for overlapping school district debt service and excluding self-supporting debt. Future borrowing needs are manageable and amortization is expected to remain rapid (the current 10-year payout is 69%) as the city attempts to limit the life of new, non-self-supporting debt to around six years.

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