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Fort Worth Readies $257M for Redevelopment Push

DALLAS — Amid one of the largest redevelopment projects in its history, Fort Worth, Texas, will go to market with $257 million of debt for new money and refunding as the city’s economy steadily improves.

This week the city will issue $139 million of new-money general obligation debt for a variety of street, drainage and other projects.

A second tranche will provide $32.5 million of refunding for 2005 water and sewer bonds, which are GOs also backed by water and sewer revenue. Those bonds are expected to price Tuesday.

Fort Worth will also sell $85.5 million of certificates of obligation competitively on Aug. 14 to finance a police and fire training facility and purchase public safety equipment.

Loop Capital is lead underwriter on the GO debt, with Stifel Nicolaus heading the refunding deal.

The bonds carry ratings of Aa1 from Moody’s Investors Service and an equivalent AA-plus from Fitch Ratings, both with stable outlooks. Fitch revised its outlook down from positive, based on budgeting problems the city has encountered.

“After successfully addressing large budget gaps over the past two fiscal years, primarily through aggressive spending reductions, management anticipates a drawdown of reserves in fiscal 2012 as expenditure growth continues to outpace revenues,” Fitch analysts Julie G. Seebach and Steve Murray noted. “The ongoing budget challenges are the primary reason behind the outlook revision to stable from positive.”

In addition to affirming $599 million of Fort Worth GOs, Moody’s affirmed its Aa2 underlying rating on Series 2004 lease revenue bonds.

“Despite the recent economic downturn, the city’s taxable value growth has remained relatively stable,” wrote Moody’s analysts James Hobbs and Toby Cook.

Fort Worth’s fiscal 2012 adopted budget projected a $24.2 million shortfall. City officials report relatively strong year-to-date budget performance but also note that operational pressures remain.

Officials report continued scrutiny of expenditures as the city recently closed one of its underperforming golf courses, and plans to revisit the rate structure of one of its parking garages. The city also is currently negotiating its police labor contracts that end this year and the firefighter contract that ends next year.

 Current year-to-date estimates show that the city will use roughly $16.5 million in reserves at the end of the fiscal year. Better-than-expected sales tax collection could result in a smaller than expected use of reserves at fiscal year-end. Fort Worth finance officials plan to maintain reserve levels and do not anticipate the reserve position to fall below the stated formal reserve policy.

“Moody’s views the city’s demonstrated ability to balance previous budgets and the commitment to the fund balance policy as credit positives,” Hobbs and Cook said. “Ongoing structural deficits and an inability to maintain adequate reserve levels could place downward pressure on the city’s credit quality.”

As the city prepares its fiscal 2013 budget, management cites rising health care costs as a significant pressure. Improving sales and property taxes will help in the upcoming budget cycle, officials said. Officials expect to complete the upcoming 2013 budget by Sept. 18.

With an estimated 2012 population of about 754,000, Fort Worth’s population continues to grow. The city’s large extra-territorial jurisdiction also provides opportunity for future annexation and growth, analysts noted.

As the western anchor of the Dallas-Fort Worth area, Fort Worth is developing a plan to draw more of the region’s estimated 6.5 million people into its city center.

The heart of the Trinity River Vision is a redevelopment of the blighted uptown area north of downtown. The plan is administered by a newly created board known as the Trinity River Vision Authority. Last week the TRV announced $22.3 million in federal funding for three bridges at the Trinity Uptown site, which as currently envisioned would include condos and townhomes along a rerouted river, creating an urban lake and canals between housing and related developments.

“You’re about to see true forward progress, and it’s all going to happen in the next 12 months,” said JD Granger, executive director of the Trinity River Vision.

The authority secured funds for two other bridges last year. The money means the project’s schedule is now moved up by three years.

“Next year, all three bridges start,” Granger said. “In January, June and December, all three will be under way, so we’re very excited about that.”

The development is a point of pride for Fort Worth, which has surpassed rival Dallas in enlivening its downtown, with attractions such as Sundance Square, Bass Performance Hall and other amenities.

As Fort Worth makes headway on redevelopment of the West Fork of the Trinity, Dallas is stymied in its plans to convert its eastern fork of the waterway into an area with recreational appeal. Plans for a tollway along the east levee of the Trinity in Dallas have no prospects for funding as the U.S. Army Corps of Engineers seeks proposals for bolstering the levees that have been deemed inadequate.

In Fort Worth, the banks of the Trinity are more accessible, with parks and trails running through downtown. Fireworks and festivals attract large crowds to the parks in Fort Worth each year. However, the area on the north bank of the river across from downtown became a hodge-podge of industrial plants and warehouses, leaving the land polluted and unsuitable for housing.

Under the Trinity Vision plan, that section would become Uptown or Panther Island, bordered by the Trinity via a diversion channel after environmental restoration.

As the development progresses gradually, Fort Worth continues to recover from the Great Recession that did not impact the city as hard as many others.

Military-related spending accounts for an estimated one-quarter of the city’s economy, with recent gains in other sectors, such as services, construction and trade. Production of natural gas in the Barnett Shale through new hydrological fracturing techniques has also proven a major boon while challenging the city’s ability to address environmental concerns of homeowners.

One of the biggest economic questions hanging over the city is the bankruptcy filing by Fort Worth-based AMR Corp., parent of American Airlines. AMR announced 13,000 layoffs in February, and the impact is being felt in Fort Worth given that both management and maintenance workers in the area were included in the layoff announcement, analysts said.

Despite the AMR layoffs, the city has added to employment totals by at least 2% each of the last two years while the unemployment rate has declined. In May, the city’s jobless stood at 6.9%, down from 8% a year ago and below the national average of 7.9% for the month.

City wealth levels are below those of the region and state, according to analysts. However, housing prices remain relatively low in comparison to other large cities in the state, pointing to a lower cost of living.

Taxable assessed value, or TAV, grew by a compound annual growth rate of 5% between fiscal 2007 and fiscal 2012, although growth slowed in fiscal 2010 and then dipped 2% in fiscal 2011.

“The fiscal 2012 TAV indicates some stabilization with a 2.3% increase to $41.98 billion, and management anticipates similar increases for the near term,” Fitch noted. “Given recent history and the relative strength of the Dallas-Fort Worth regional economy, Fitch considers this forecast reasonable.”

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