S&P Global rated all of the City of Round Rock’s upcoming property tax-backed debt issues with the highest AAA long-term rating possible, citing the city’s “very strong” management and “solid” budget performance in conjunction with the “very strong” of central Texas “Economy.
S&P Global has upgraded the rating of Round Rock Transportation and Economic Development Corporation (RRTEDC) tax-backed debt issuance to AA- from A +, resulting in significant interest savings. The RRTEDC is a seven-member board of directors that promotes the economic development of the city through transportation projects and other projects authorized by state law. Half a cent of the city’s sales tax goes directly to the Type B corporation to fund economic development projects in the city.
On April 22, Round Rock City Council approved a series of debt securities issues for transportation, economic development and fleet purchases.
“These rating increases are really helping our taxpayers,” said Mayor Craig Morgan. “It’s like the interest rate on your credit card and your credit score. A better credit rating allows you to get a lower interest rate. “
For example, upgrading the sales tax-backed debt rating will save the city more than $ 200,000 in interest payments, said Garry Kimball of Specialized Public Finance, financial advisor to the city.
According to S&P Global’s analysis, the ratings of the property tax-backed issues reflect its opinion on Round Rock:
- Very strong economy, with access to a large and diversified metropolitan statistical area (MSA)
- Very solid management, with strong financial policies and practices
- Strong budgetary performance, with operating results that S&P Global expects, which could weaken in the near term compared to fiscal 2020, which ended with an operating surplus in the general fund and a slight operating surplus at the total level of government funds in fiscal year 2020
- Very high budgetary flexibility
- Very high liquidity
In its credit overview, S&P Global cited Round Rock’s access to Austin, several colleges and high-tech industries, as well as a large and educated workforce that remains attractive to businesses and individuals. , which translates into continued economic growth.
“The local economy has remained resilient throughout the pandemic,” the report says. “Sales tax revenues increased in 2020 despite the losses of various establishments during mandatory business closures.”
Highlights of Round Rock’s “very strong economy” include a projected effective purchasing income per capita of 121 percent of the national level; City market growth of 6.3% over the past year to reach $ 15.6 billion in 2021; and a weighted average unemployment rate of 2.8% for metropolitan counties in 2019.
The report continues: “Despite the COVID-19 pandemic, the local economy has not experienced any significant contraction. In fact, the growth has continued and includes Kalahari Resorts, an African themed resort with a convention center, hotel, spa, several dining and entertainment options, and a water park. The resort, located on 352 acres, opened on time late last year despite the pandemic and hotel reservations continue to climb, especially as COVID-19 restrictions have been lifted. lifted. … There are also five hotels under construction in the city, including an Embassy Suites hotel and a conference center. Other upcoming developments include two new manufacturing facilities later this year and an expansion from Amazon to Round Rock with a new delivery station. In addition, a camouflage manufacturer for the defense industry will be relocating to the city from Maryland and supplying the new Army Futures Command in Austin.
S & P’s analysis also cited “very strong management of the City”, with “strong financial policies and practices”. One of the strengths of S&P’s assessment of the City’s financial policies and practices is its analysis of historical trends and the regular budget versus actual budget updates provided to City Council.
“Management uses conservative revenue and expenditure assumptions based not only on trend analysis, but also on economic modeling of internal and external contributions from external expert consultants,” the report says. “The city monitors and reports on its fiscal performance, including actual year-to-date results against budget, and the investment portfolio on a quarterly basis to city council.”
Regarding the “strong budgetary performance of the City,” the report notes that “the City had excess operating results in the general fund of 8.9% of expenses, and a slight excess of results in all funds. government by 0.9% in fiscal 2020.… Despite limited disruption to the local economy resulting from COVID-19 to date, officials have taken a very conservative approach to the city’s budget assumptions for 2021. The budget passed has been balanced, with a $ 5 million reduction in general fund spending, and the city plans to end the year on budget, although it will likely transfer some of the excess reserves for one-time capital projects or to reduce debt.
The report continues, “We expect the strong growth in Round Rock’s tax base and increased sales tax collection to enable the city to generate sufficient revenue to continue to fund its growing budget.” . Given strong revenue growth and prudent fiscal practices, we expect Round Rock to continue to perform better than expected, confirming our view that the city’s fiscal performance is strong.
For sales tax-backed issues, S&P Global said the rating upgrade “reflects steady growth in sales taxes which we believe will continue to provide strong coverage.”
The main considerations include:
- The strength of the local economy and its continued expansion, accompanied by positive annual growth in tax collections
- A solid assessment of the sales tax revenue stream which she says is generally subject to moderate to low levels of historical volatility
- General solvency which, according to her, does not limit the solvency of the structure of the promised tax revenues