Arlington, Texas; General Obligation

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1 Summary: Arlington, Texas; General Obligation Primary Credit Analyst: Omar M Tabani, Dallas (1) ; omar.tabani@standardandpoors.com Secondary Contact: Theodore A Chapman, Dallas (1) ; theodore.chapman@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research MAY 13,

2 Summary: Arlington, Texas; General Obligation Credit Profile US$36.13 mil Perm Imp Rfdg Bnds ser 2015B dtd 05/15/2015 due 08/15/2027 Long Term Rating AAA/Stable New US$ mil Perm Imp Bnds ser 2015A dtd 05/15/2015 due 08/15/2035 Long Term Rating AAA/Stable New Rationale Standard & Poor's Ratings Services assigned its 'AAA' rating to Arlington, Texas' series 2015A permanent improvement bonds and series 2015B permanent improvement refunding bonds. At the same time, Standard & Poor's affirmed its 'AAA' ratings on Arlington's existing property tax-supported debt. The outlook is stable. Proceeds from the series 2015A bonds will be used to fund various capital projects, while series 2015B bond proceeds will be used to refund existing debt for interest savings. The 2015A and 2015B bonds are payable from an ad valorem tax, levied within the limits prescribed by law, on all taxable property in the city. The city's current property tax rate is 43.5 cents per $100 of assessed value (AV), well below the maximum allowable $2.50 per $100 of AV. The rating reflects our opinion of the city's: Strong economy, Strong budgetary performance, Very strong budgetary flexibility, Very strong liquidity, Very strong management conditions, Weak debt and contingent liabilities profile, and Strong institutional framework. Strong economy Despite below-average income and wealth, we consider Arlington's economy strong due its participation in the Dallas-Fort Worth-Arlington metropolitan statistical area (MSA) and the presence of stabilizing institutions. Per capita income is 91% of the national level, and taxable AV is $51,000 per capita. The county's unemployment rate was 6% in With an estimated population of 366,000, Arlington has a diversified local economy driven by various industries. Residents also have access to larger employment bases in nearby Fort Worth and Dallas. Leading city employers include Texas Health Resources, Arlington Independent School District, University of Texas-Arlington, General Motors Corp., and a variety of technology and health care employers. The Arlington economy also has a strong tourism sector. Leading attractions include: AT&T Stadium, home of the National Football League's Dallas Cowboys and a major venue for concerts and MAY 13,

3 Summary: Arlington, Texas; General Obligation national sporting events; Globe Life Park, home of Major League Baseball's Texas Rangers; and Six Flags Over Texas (an amusement park). After contracting in fiscal 2011 due to the national economic downturn, the city's property tax base has demonstrated steady growth, having recently surpassed its pre-recessionary peak. Taxable AV has grown an aggregate 10% since fiscal 2011 (including 4.3% in the most recent year), to reach $18.9 billion in fiscal Preliminary fiscal 2016 estimates indicate AV could grow 4% relative to the previous year. Citywide sales tax collections experienced a minor decrease in fiscal 2014, but have demonstrated aggregate growth of 14% since fiscal For fiscal 2015, city officials budgeted for a 2% increase, and they report year-to-date collections are tracking ahead of budget. Strong budgetary performance We view the city's budgetary performance as strong after netting out non-recurring expenditures related to funding one-time capital projects, and a spend-down of bond proceeds. In fiscal 2014, the city reported a 1.2% adjusted general fund surplus and a 0.6% adjusted total governmental funds surplus. Taxes (which include property and sales taxes) accounted for 67% of fiscal 2014 general fund revenue. For fiscal 2015, the city is projecting a general fund surplus of less than 1% at fiscal year-end. Very strong budgetary flexibility We believe the city's budgetary flexibility is very strong. Its fiscal 2014 year-end available general fund balance was $54.5 million, or 27% of expenditures. When factoring $100 million in the "Arlington Tomorrow Fund" -- which receives natural gas royalties from city-owned property and can be used for any purpose, if necessary -- the city's total available fund balance equates to an even stronger 72% of expenditures. The city does not intend to spend down reserves significantly over the next two to three years, and it has a formal minimum general fund balance policy of 15% of expenditures. The Tomorrow Fund's corpus recently reached $100 million; any amount over $100 million would automatically flow to the city for general spending purposes. Very strong liquidity Supporting the city's finances is liquidity we consider very strong, with no plans to significantly reduce available cash over the next two to three years. Fiscal 2014 total government year-end cash (net of restricted amounts) was over 50% of expenditures and 235% of annual debt service. We believe the city has exceptional access to external liquidity, indicated by frequent debt issuance backed by various revenue streams in recent years. Very strong management conditions We view the city's management conditions as very strong, due primarily to a Financial Management Assessment score of "strong". Key financial practices include: Long-term financial projections with multiyear budgetary forecasts, Long-term capital planning that is updated at least annually, Comprehensive intra-year financial updates presented regularly to elected officials and posted on the city's website, Policies governing debt issuance, and Formalized policies that speak to minimum fund balance requirements. MAY 13,

4 Summary: Arlington, Texas; General Obligation Weak debt and contingent liabilities profile We view the city's debt and contingent liabilities profile as weak. Total governmental funds debt service is roughly 21% of expenditures, and net direct debt is over 166% of projected total governmental fund revenue. However, a significant portion of the city's debt is supported by miscellaneous revenues. Including all overlapping entities, overall debt is 6.5% of taxable AV. The city has a formal policy to retire level principal every year, rather than make level payments (including interest). Therefore, principal amortization is faster than average, in our view, with 69% of principal due to mature over 10 years. Additionally, the city passed a $236 million bond referendum in After this issuance, the city will have $262.2 million of unissued debt remaining from its 1993, 2003, 2008, and 2014 bond authorizations. Officials will likely issue the remainder of these authorizations over the next five years. Therefore, we believe the city's debt profile will continue to remain weak. Arlington participates in the Texas Municipal Retirement System, to which the city made its annual required contribution in fiscal As of the most recent actuarial valuation date, the pension plan was 84% funded. Arlington also offers a thrift savings plan, a part-time deferred income trust, deferred-compensation plans, retiree health insurance, and supplemental death benefits to eligible employees. Total city contributions for all pension and other post-employment benefits (OPEBs) in fiscal 2014 equated to 8.5% of adjusted total governmental fund expenditures for the year. Strong institutional framework We consider the institutional framework score for Texas cities to be strong. Outlook The stable outlook reflects our expectation that the city will continue to benefit from its participation in the broad and diverse Dallas-Fort Worth-Arlington MSA, and that the presence of many large, longstanding institutions will continue to provide a degree of economic stability. The outlook also reflects our view that Arlington will likely sustain its very strong financial profile, with the Arlington Tomorrow Fund remaining as a source of liquidity and budgetary flexibility, if needed. Finally, the outlook reflects our expectation that, given the city's future issuance plans, its debt and liabilities profile will remain weak, but its policy of annual level principal payments will promote faster-than-average principal amortization. We could lower the ratings if the city's financial position or local economic base were to deteriorate, but we do not consider those scenarios likely within the two-year outlook period. Related Criteria And Research Related Criteria USPF Criteria: Limited-Tax GO Debt, Jan. 10, 2002 USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 Ratings Above The Sovereign: Corporate And Government Ratings Methodology And Assumptions, Nov. 19, 2013 Related Research S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 Institutional Framework Overview: Texas Local Governments MAY 13,

5 Summary: Arlington, Texas; General Obligation Ratings Detail (As Of May 13, 2015) Arlington comb tax & rev certs of obligation ser 2014 Long Term Rating AAA/Stable Affirmed Arlington GO Long Term Rating AAA/Stable Affirmed Arlington GO Unenhanced Rating AAA(SPUR)/Stable Affirmed Long Term Rating AAA/Stable Affirmed Many issues are enhanced by bond insurance. Complete ratings information is available to subscribers of RatingsDirect at All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. MAY 13,

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