NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned underlying 'AAA' ratings to the following general obligation (GO) issuances of Baltimore County, Maryland (the county):
--$100 million consolidated public improvement commercial paper bond anticipation notes 2011 series;
--$100 million metropolitan district commercial paper bond anticipation notes 2011 series.
The bonds are expected to sell on Aug. 3, 2011 via negotiation. The current issue includes a rollover of $81.4 million in outstanding commercial paper (CP) and the sale of $118.6 million in new CP. The county is providing its own liquidity for interest payments. An external liquidity provider will provide standby liquidity with respect to the notes. Fitch will separately assign short-term ratings based on its assessment of the credit characteristics of the external liquidity provider.
In addition, Fitch affirms the following ratings:
--$1.3 billion outstanding GO bonds at 'AAA';
--$63.3 million outstanding lease obligations (Equipment Acquisition Project and Social Services Building Project) at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are secured by the county's pledge of its full faith and credit and its unlimited taxing power. The lease obligations are secured by purchase installments made by the county that are subject to appropriation and a security interest in essential leased assets.
CREDIT SUMMARY
STRONG CREDIT PROFILE: The county's 'AAA' rating reflects a robust economy, drawing upon a variety of well-paying sectors. Reserves are sound and projected to remain at levels consistent with the rating subsequent to draw-downs for one-time uses and to compensate for weakened revenue. The debt burden is low and future debt issues are expected to fall within spending affordability parameters.
KEY RATING DRIVERS
--CONSIDERABLE ECONOMIC BASE: The broad and diverse economy benefits from the presence of federal installations, health care, financial services, and higher education. Highly structured development efforts, focusing on growth management and collaboration with surrounding jurisdictions, underscore excellent prospects for continued expansion.
--FISCAL DISCIPLINE: Solid reserve levels, controlled expenditure growth, and excellent financial management are hallmarks of this credit.
--FAVORABLE DEBT POSITION: Adherence to prudent debt policies, a historical use of pay-as-you-go capital financing, and rapid amortization help maintain moderately low overall debt levels.
--APPROPRIATION RISK AND ASSET ESSENTIALITY: The ratings for the certificates of participation reflect appropriation risk and the essential nature of the assets subject to lien.
CREDIT PROFILE
Baltimore County possesses a substantial employment base consisting of planned development corridors that largely surround the independent city of Baltimore. Federal installations, health care, financial services, and higher education predominate, with skilled manufacturing a growing sector and major focus of economic development. Fitch believes intermediate and long-range growth prospects are strong. Residential unemployment (7.1% in April 2011) compares favorably with that of the U.S. (8.7%) although slightly exceeds the state average (6.6%). Wealth indicators are around those of the affluent region and state, but are well above the U.S. average.
Reserves have diminished recently and are expected to stabilize at or above the policy level of 5% of revenues. Drawdowns of general fund balance from fiscal 2007 - 2009 represented the implementation of the county's multi-year plan to reduce its reserves through appropriation of pay-as-you-go funding to its capital budget. Weakened revenues led to a structural imbalance beginning in fiscal 2010. The county has begun implementing measures to return to structural balance, and it anticipates utilizing reserves to fund operations until it achieves a balanced position in fiscal 2016. Fitch believes that the county's ultimate planned reserve level of at least 5% is adequate for the county's needs at the 'AAA' rating level assuming strong financial management, debt and economic credit factors remain constant.
Structural budget gaps first evident in fiscal 2010 are partly attributable to anemic income tax revenues. Fiscal 2010 income tax revenues were $110 million below budget, largely a result of a repayment to the state due to a prior $66 million overpayment. Fiscal 2011 collections are projected to be $52 million shy of budget, although above the level of the previous year. The fiscal 2012 budget conservatively projects marginal improvement in this revenue source.
In response, the county reduced pay-as-you go capital funding and returned to the general fund money previously committed to the capital and economic development funds. The county lowered pay-as-you go capital financing by $100 million and transferred back $118 million to the general fund in fiscal 2010. It additionally released $25 million from its health care reserves. The fiscal year still ended with a $28.5 million reduction in total fund balance. Reserves equaled 13.6% of revenues, or in a measure more commonly utilized by Fitch, 12.5% of spending. Fiscal 2011 included minimal pay-as-you go capital spending, at $2.6 million, and the return to the general fund of an additional $53 million of money previously committed to capital funding. Preliminary fiscal 2011 results indicate a slight increase in the unreserved fund balance to 13.9% of revenues.
The adopted fiscal 2012 budget appropriates $60.8 million in reserves to address the weakened revenues. Reserves are expected to equal 10% of revenues at the conclusion of the year. The county's proposal to address the structural imbalance by fiscal 2016 includes alterations in the terms of future contracts, previously implemented pension and other post-employment benefit (OPEB) modifications, and potential departmental reorganizations. Fitch takes comfort from previous successes in union negotiations and from the county's historically strong financial management and planning.
Future capital needs are substantial but manageable. Overall net tax-supported debt ratios are a low $1,226 per capita and 1.2% of market value, and amortization is an above-average 61.2% within 10 years. Debt ratios exclude outstanding metropolitan district debt, which is paid from rates and charges generated by the self-supporting water and sewer district, although it is secured by the county's full faith and credit pledge. The six-year capital improvement program (CIP), which covers fiscal years 2012-2017, totals approximately $1.9 billion and includes a variety of utility, public works, and school projects. Future planned borrowings range from $250 million - $275 million annually through at least fiscal 2017, split between tax-supported and metropolitan district debt.
The county has traditionally funded its capital needs through the issuance of CP and then refinanced the CP though the issuance of long-term debt. The current issue rolls over $81.4 million of CP and increases its CP by $118.6 million. Outstanding CP will total $400 million subsequent to the current issue. The county's variable rate debt position will be slightly above 18% of total debt, a level that Fitch considers appropriate for such a highly rated credit. The county plans to issue $251 million of long-term debt in early 2012 to take out a portion of the CP. It will then reissue CP until it attains the maximum authorization.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 08, 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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