DALLAS — Austin has earned its first AAA rating from Standard & Poor’s, becoming the largest city in Texas with the top credit ranking.

The rating agency conferred the top marks in advance of a $173 million refunding deal led by Lehman Brothers scheduled for Jan. 31. The upgrade, which also affects $781 million of outstanding general obligation debt, comes after years of stability under the AA-plus rating, despite an economic downturn in 2001.

“We’re ecstatic,” said Treasurer Art Alfaro. “It’s a great thing to put on our resume. We’ve always traded like a triple-A, and this just confirms that.”

Fitch Ratings maintained its AA-plus rating on the upcoming deal. Moody’s Investors Service has Austin at Aa1 but has not yet reported its rating on the upcoming deal.

The only other cities in Texas with a triple-A from Standard & Poor’s are the Dallas suburbs of Plano and Irving.

Standard & Poor’s analyst Theodore Chapman said Austin’s upgrade was due to “a combination of their financial management and how well they’ve rebounded from the dot-com bust.”

Increased diversification of the economy from the high-tech sector and new financial controls imposed by the City Council have contributed to Austin’s improved position, according to Chapman. The city’s contingency reserve has increased from $15 million to $40 million, he said.

“Even if things get fairly tight, they’ve still got a good cushion,” Chapman said.

Austin’s fiscal 2008 budget is balanced, with operating revenues and expenditures climbing 8% and 11%, respectively above projected fiscal 2007 totals.

“Staff believes fiscal 2008 is the final year of restoring services in various areas (e.g. public safety, community, and support services) that experienced cutbacks during the last recession,” Fitch analysts Steve Murray and Douglas Scott noted. “Fitch believes the pressure to maintain expected high levels of service will be an ongoing challenge for Austin, and that a significant slowdown in economic growth likely would force the city to make some painful choices regarding service delivery and staffing.”

The city’s $105 million unreserved general fund balance for fiscal 2006 accounted for 22% of general fund expenditures, after a $6.5 million operating surplus. Officials attribute a $9.5 million surplus at fiscal year-end 2007 to stronger-than-budgeted sales tax revenues, which rose by 9.9%. Development-related fees and charges also contributed to the improved picture.In the upcoming refunding, Austin expects to achieve present value savings of $8 million, Alfaro said. The new bonds refund eight previous series.

The city’s financial manager on the refunding is Public Financial Management Inc., with McCall, Parkhurst & Horton LLP as bond counsel.

Austin maintains about $545 million of authorized but unissued bonds, approved by voters in a November 2006 bond election. Drainage and water quality projects, transportation, parks, and library services were the largest components of the bond proposal. The expected tax rate impact from the entire authorization, which will be issued through around 2011, is minimal, Fitch analysts said.

As the capital city and home to the University of Texas, Austin enjoys the stability of a high number of government jobs, analysts noted.

As the fourth largest city in Texas and the 16th largest in the United States, Austin ranked as the third fastest growing in the nation from 2000 to 2006. As of the 2006 U.S. Census estimate, the city had a population of 709,893 in a metro area of more than 1.5 million.

Last week, Austin named a new city manager, Marc Anthony Ott, formerly Fort Worth assistant city manager. Ott, 52, is the city’s first African-American city manager. In his new job, he will supervise more than 12,000 employees in 25 departments.

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