Fitch Ratings has assigned an 'A+' rating to the Edinburg, Texas (the city) $3.85 million certificates of obligation (COs), series 2004A. Additionally, Fitch affirms the 'A+' rating on the city's $6.7 million general obligation bonds and $25.4 million certificates of obligation outstanding. The certificates are scheduled to sell via negotiation the week of Dec. 6 through First Southwest Company. The Rating Outlook is Stable.

The certificates are scheduled to sell via negotiation the week of Dec. 6 through First Southwest Company. The certificates are direct obligations of the city, payable from an ad valorem tax levied against all taxable property within the city, subject to a $2.50 per $100 taxable assessed valuation (TAV) limitation. The certificates are secured further by a pledge of net revenues of the city's waterworks and sewer system, not to exceed $1,000. Proceeds will be used to finance street improvements and a new municipal library.

The 'A+' rating reflects the city's sound financial profile, continued economic expansion and tax base growth, and low direct debt burden. Additional rating considerations are increasing service pressures resulting from rapid population growth and historically below-average employment levels in the region. General fund operations consistently have produced operating surpluses, maintaining and adding to a fund balance that by policy must equal 25% of expenditures.

Edinburg is the county seat of Hidalgo County in southern Texas and is part of the fourth fastest growing metropolitan statistical area in the nation. The city's estimated 2004 population of 57,558 is up more than 65% from the 1990 census. Given its proximity to Mexico (20 miles to the south), the city serves as a distribution center, benefiting from the trade generated by cross-border manufacturing activity, as well as the agricultural production in the region. However, its distance from the border insulates the city somewhat from sales tax fluctuations that could be attributable to potential peso devaluations or reliance on shoppers from Mexico.

Economic expansion is continuing at a healthy pace in the city and surrounding region, as evidenced by record residential and commercial building permit totals in 2003. Energy production, health care, higher education, and tourism are economic components that have developed in recent years to complement the distribution, trade, and agricultural sectors. The University of Texas-Pan American campus, with an enrollment of more than 14,000, is located in Edinburg. While the area unemployment rate remains higher than state and national averages, the October 2004 rate of 9.7% represents the first monthly figure below 10%. Wealth levels remain substantially lower than that of the remainder of the state and nation, although the below-average cost of living somewhat offsets this characteristic.

Growth in TAV has been impressive over the past five fiscal years, averaging nearly 15% annual gains during that time. Growth tapered off somewhat to still healthy gains of 6.6% and 9.0% in fiscal 2004 and 2005, respectively. These valuation gains have enabled the city to benefit from increasing property tax revenue while maintaining the same total property tax rate for 10 consecutive years. The taxing effort has shifted toward general fund operating needs over the past four fiscal years as the growing population has generated more service demands. Despite the escalating spending pressures, the city has achieved consistent operating surpluses.

For fiscal 2003, the general fund recorded net income of 539,000, which contributed to a total fund balance of $7.1 million at year-end. This figure represented roughly 33% of general fund expenditures and transfers out. Sales tax revenues increased a modest 2% for the year, reflecting the national recessionary climate. Unaudited figures for fiscal 2004 anticipate positive operating results and a total general fund balance nearing $9 million. Sales tax revenues, meanwhile, are projected to rebound with a 10% increase from fiscal 2003 totals. Sales taxes are a principal operating revenue source, generating roughly 30% of total general fund revenues in fiscal 2003.

The fiscal 2005 budget is balanced and includes an across-the-board 3% salary increase and a 3% merit pay increase. Additional public safety hiring is anticipated to adequately serve the growing population. The city anticipates no increase in health care costs, following a 10% decline in health-related outlays in fiscal 2004 due to the implementation of preventive health care programs. Overall, general fund spending is budgeted to increase roughly 9% from the fiscal 2004 budget level.

The city's direct debt burden is low at $453 per capita and 1.3% of fiscal 2005 TAV. Amortization of direct debt is average with roughly 50% retired in 10 years. Future borrowing needs are expected to be moderate and will address facility needs primarily. The overall debt burden is moderate at $1,351 per capita and 4% of TAV. Hidalgo County, rated 'A' by Fitch, South Texas Community College District, and Pharr-San Juan-Alamo Independent School District have marketed debt issues recently to address the infrastructure demands brought on by the significant growth in the region.