High ratings will support Arlington, Texas, pension bond plans
With its professional sports stadiums and amusement parks in limbo due to the COVID-19 pandemic, Arlington, Texas, plans to take advantage of its top credit rating and low interest rates with $192 million of pension obligation bonds.
Scheduled for a negotiated sale Aug. 27, the bonds will be used to fully fund the city's outstanding pension liability as of the Dec. 31, 2019 valuation date.
The general obligation bonds are backed by property taxes, which are limited to $2.50 per $100 of taxable assessed valuation.
Proceeds will go to the Texas Municipal Retirement System, a multi-employer defined benefit plan. As currently structured, the financing is projected to generate long-term savings as the city's TMRS contribution rate will drop from roughly 16% of payroll in fiscal 2020 to less than 10% beginning in fiscal 2021.
“The issuance of the GO pension bonds will have minimal net effect on the city's total long-term liability burden, as the new issuance will substitute one liability (pension) for another (direct debt),” according to Fitch Ratings, which rates the bonds AAA with a stable outlook. “There is no extension to the city's liability, as the maturity schedule of the bonds matches the expected amortization period for the unfunded liability.”
S&P Global Ratings also rates the debt AAA with a stable outlook, while Moody’s Investors Service rates the debt Aa1 and stable.
Before the taxable pension deal, Arlington will be in the market Wednesday with a competitive sale of $39.1 million of tax-exempt permanent improvement bonds that mature serially through 2040.
After these deals, the city will have $664.5 million in GO debt outstanding.
Analysts see Arlington’s fiscal management as solid, despite the blow that the pandemic has delivered to visitor-dependent city.
Its new $1.1 billion Globe Life Field stadium opened last week for the abbreviated Major League Baseball season, but without any fans in the seats.
Six Flags over Texas amusement park venues in the city reopened in June; management said attendance is being capped to promote social distancing. How the pandemic will impact the NFL, whose Dallas Cowboys play at AT&T Stadium in Arlington, remains to be seen.
“We believe the city will maintain financial stability through fiscal years 2020 and 2021, despite the pandemic and ensuing recession,” said S&P analyst Kristin Button. “The historically very strong financial reserves and good management practices also contribute to the stable outlook.”
With a population of nearly 400,000, Arlington sits halfway between Dallas and Fort Worth and is bisected by Interstate 30. The city's tax base of $29 billion as of this year is about 12% increase from the prior year. While the city's unemployment rate has been below the state and national levels, analysts expect that rate to rise.
In addition to the entertainment business, Arlington’s top employers include a General Motors assembly plant. The company's business has also been affected by the economic downturn.
Just north of Arlington, American Airlines headquarters and Dallas-Fort Worth International Airport are also large employers.
A $250 million Texas Live entertainment complex that opened in August 2018 at the Rangers stadium has more than 200,000 square feet of restaurants, retail, and entertainment, and an outdoor events pavilion that can accommodate up to 5,000 visitors.
Loews Hotels and the city were in the planning stages for a new hotel and convention center when the COVID-19 virus hit the U.S.
“The large tourism component of the local economy will either hinder or drive the city's ability to recover from the recession,” Button wrote. “Most of these attractions remain closed because of the pandemic, which will dampen revenue collections until they are able to reopen.”
“The city's preliminary assumptions indicate a general fund revenue shortfall of roughly $16.5 million, or 6% of budgeted operating revenues for fiscal 2020,” Fitch analysts said. “This revenue shortfall is primarily due to declining sales tax revenues and, to a lesser extent, court revenues and impact fees.