Fitch Rates Grand Prairie, Texas' GOs & COs 'AA'

Business Wire, August 19, 2004

NEW YORK -- Fitch Ratings assigns 'AA' ratings to the following issues for the City of Grand Prairie, Texas' (the city):

--$9.73 million general obligation (GO) refunding and improvement bonds, series 2004A;

--$2.12 million combination tax and airport revenue certificates of obligation (COs), series 2004A AMT;

--$16.71 million combination tax and revenue COs, series 2004B.

The bonds and certificates are expected to price Aug. 23 via a syndicate led by RBC Dain Rauscher Inc. Additionally, Fitch affirms the 'AA' ratings on the city's outstanding $67.3 million GO bonds and $61.2 million COs. The Rating Outlook is Stable.

The bonds and certificates are direct obligations of the city, payable from an ad valorem tax subject to a $2.50 per $100 taxable assessed valuation (TAV) limitation. The series 2004A certificates are further secured and payable from a lien on surplus net revenues of the city's municipal airport. The series 2004B certificates are also payable from a limited pledge of net revenues of the water and wastewater system, not to exceed $2,500. Bond proceeds will be used to fund refund a portion of the city's outstanding bonds and certificates in order to lower debt service requirements, finance street improvements, and pay costs of issuance. The series 2004A certificates will fund airport improvements and pay costs of issuance. The series 2004B certificates will provide for various public improvements and pay costs of issuance.

The high grade rating reflects the city's continued tax base expansion and diversification, prudent financial stewardship and sound fiscal operations, and moderate debt burden. Residential development continues at a brisk pace and retail trade has followed, further diversifying the tax and economic base from its traditional commercial and industrial anchors. Sales tax receipts appear to have rebounded after modest declines in fiscal 2002 and 2003. While an expanding population is expected to generate service related pressures at some point, the city's healthy reserve levels, extensive planning and forecasting efforts, and conservative budgeting practices position the city well to meet future demands.

City finances have been characterized by generally positive operating results and healthy reserves. The general fund ended fiscal 2003 with a modest operating surplus and a fund balance of $16 million, representing 23% of expenses and transfers out. Liquidity was equally sound, with cash and short-term investments totaling nearly $15 million for the year; these results were consistent with prior years' results. Preliminary fiscal 2004 operating results project about a $1 million operating surplus.

The proposed fiscal 2005 budget includes some realignment, including cuts in discretionary expenses and elimination of some positions. However, the budget includes sizable pay increases to the city employees to bring salaries more in line with other area communities. The budget includes a 55-day reserve, consistent with the city's fund balance policy. Historically, however, actual results have outperformed the budget.

Property taxes, sales taxes and franchise fees are the three primary general fund revenue sources. Strong TAV growth enabled the city to essentially maintain its current operations and maintenance (O&M) tax rate of $0.47 per $100 TAV since fiscal 2000. No property tax increase is included in the proposed fiscal 2005 budget. Sales tax collections, which dipped 2.5% in 2002 and 2.3% in 2003, appear to have rebounded with a 5.2% gain projected for fiscal 2004. Grand Prairie fared better than other area cities regarding sales tax revenues during the recession, and relies less on sales taxes (22%-26% of general fund revenues since fiscal 1998) than a number of other municipalities. For fiscal 2005, the proposed budget includes a 4% increase in sales taxes.

Direct debt per capita and as a percentage of TAV are moderate at about $1,200 and 2.5%, respectively. Overall debt ratios are above average, primarily due to substantial issuance by the area school district. Payout is average. No increase in the debt service tax rate is anticipated with the current offerings.

TAV growth, which averaged more than 8% annual increases from fiscal 1999-2003, registered a modest 2.6% increase for fiscal 2004 to $6.8 billion in response to the decelerating economy. Despite the economic downturn, total residential building permits soared in 2003 to nearly $250 million, well above the previous record of roughly $180 million posted in 1998. The city's TAV is anticipated to grow by 4.4% to $7.1 billion for fiscal 2005.

Prior to 2002, local unemployment rates had been lower than state and national levels. The 2002 and 2003 unemployment rate was 7.3%, above the state and nation but lower than the county rate. Most recently available monthly data points to a significantly lower unemployment rate than the same period last year. Local wealth measures generally exceed state and national averages.

Grand Prairie is located in the Dallas-Fort Worth metroplex, directly between the two major cities and south of Dallas-Fort Worth International Airport. The city has an estimated 2004 population of 142,500. Defense, manufacturing, aerospace, and distribution continue to be major components of the local economy. In addition, retail trade and entertainment have emerged recently as significant economic components and serve to diversify the mix.