NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Calvert County, Maryland general obligation bonds:
--$16.115 million general obligation consolidated public improvement and refunding bonds, 2012 series.
The bonds are scheduled for competitive sale on May 15th. Bonds proceeds will be used to provide funding for various capital projects and refund certain outstanding maturities of the series 2005 and 2006 bonds.
In addition, Fitch affirms $128.4 million in outstanding GO bonds at 'AAA'.
The Rating Outlook is stable.
SECURITY
The bonds are secured by the county's full faith and credit general obligation pledge.
KEY RATING DRIVERS
PRUDENT FINANCIAL MANAGEMENT: The county has maintained very strong reserve levels and preserved significant financial flexibility.
STABLE AND WEALTHY ECONOMY: The economy is stable as evidenced by historically low levels of unemployment and a moderate concentration in utilities. The county's population size is relatively modest and wealth levels are above average.
LOW DEBT LEVELS: The debt profile is healthy with a low overall net debt burden, rapid amortization, and affordable capital needs.
CREDIT PROFILE
WEATHLY AND ROBUST LOCAL ECONOMY
Calvert County is a prosperous jurisdiction of over 89,000 residents, located approximately 42 miles south-east of D.C. and 64 miles south of Baltimore. It is a peninsula bounded on the east by the Chesapeake Bay and on the west by the Patuxent River and has more than 110 miles of shoreline. The county is committed to maintaining its rural character and participates in the Maryland Rural Legacy Program and has a goal of maintaining 40,000 acres or 31% of the county's land area as preserved land.
Calvert County is home to one of the largest liquefied natural gas terminals in the nation, and as a result, the county's economy and tax base is moderately concentrated in utilities. Combined, utilities account for roughly 7.9% of the county's total 2011 taxable assessed valuation (TAV) led by Constellation Energy Group Inc. and the Dominion Power's Cove Point Liquefied Natural Gas Plant. Fitch believes potential concentration risk is somewhat offset by the essential nature of power and natural resource facilities.
The county's unemployment rate remains comfortably below the current state and national averages. Wealth levels in the county are well above average, with per capita and median household income in 2011 equal to 133% and 176% of the national average levels, respectively.
DECLINING TAXBASE
Calvert County, like all Maryland municipalities, benefits from a triennial assessment practice which smoothes annual volatility in tax base performance. The county adopted a homestead percentage of 110%, which means that assessments on certain owner-occupied residential property may not increase by more than 10% in any given year. Any growth in excess of 10% is credited, or 'banked', and can be used to offset future tax base declines.
The county's TAV continued to expand through fiscal 2010 due to the use of 'banked' homestead tax credit, despite pressure on property value. TAV declined by 6% for fiscal 2011 and by an additional 5.8% for fiscal 2012. The county is projecting a 5.4% decline for fiscal 2013 for a three-year consecutive decline of 17.2%. The value of the homestead credit will be whittled down by fiscal 2013 to $17.3 million. Fitch notes the county has the ability to adjust its property tax rate, without restriction, to temper the financial impact of future TAV declines. Calvert County has not increased the real property tax rate since 1987, and rates are competitive against neighboring counties.
Commercial growth within the county remains positive. County data reports sustained commercial growth through March 2012, with no contraction in the value of the countywide commercial real property base, and additions to square footage and capital investment. New residential permits issued year-to-date for fiscal 2012 have increased for the first time in three years. Tax base concentration is moderate, focused specifically on utilities and on electricity generation.
FISCAL 2011 OPERATIONS
Financial management is strong and reserve levels are sound. Fiscal year-end 2011 results reflect a $7.9 million operating surplus after transfers (equivalent to 3.9% of spending) due to a moderate recovery and stabilization of income tax and corporate and public utility tax revenues relative to fiscal 2010 as well as conservative expenditure budgeting (actual spending was 2.4% under budget).
The operating surplus allowed the county to increase the unrestricted balance (the sum of assigned, unassigned and committed fund balance under GASB 54) to $56.9 million or an ample 25.7% of spending. The county's policy is to retain $10 million, or 8% of current budgeted operating expenditures, whichever is greater, as committed fund balance, which the county continues and has historically met.
Property taxes at 64% are the county's largest revenue source followed by income taxes at 27%. The income tax rate has not been changed since 2004 when it was increased from 2.6% to 2.8%; prior to that it had been stable at 2.6% since 1989. The county has some capacity to increase its income tax rate, providing a potential source of future revenue flexibility. The state cap is 3.2% and the average rate is 2.8%.
FISCAL 2012 YEAR-TO-DATE PERFORMANCE
Year-end fiscal 2012 projections reflect a $4.5 million operating surplus, as income tax revenues continue to rebound and expenditures continue to come in under budget. Management plans to use the operating surplus to fund capital projects on a pay-as-you-go basis in fiscal 2013. The assigned general fund balance at year-end will reflect a $1.56 million use to fund the fiscal 2013 contribution to the OPEB trust, lowering the unrestricted balance to $55.36 million or 24% of budgeted expenditures.
FISCAL 2013 PROPOSED BUDGET
The fiscal 2013 budget will be adopted in June and the adjusted staff recommended budget does not include an appropriation of fund balance. The budget addresses the anticipated shift in teachers' pension costs of $1.1 million (less than 1% of budget) to the county as well as projected declines in real estate property tax revenues through a transfer from the housing opportunity fund, and reductions in funding for capital outlay, land preservation and OPEB.
LOW DEBT BURDEN
Overall debt levels are low at 1.2% of market value ($1,805 per capita) and amortization of principal is well above average. Fitch currently does not give Calvert's water and sewer debt self-supporting credit, although this enterprise fund is on track, through a continuing series of rate increases, to be self-supporting by fiscal 2013.
The county maintains a policy of issuing bonds for general government needs with maturities no longer than 15 years, which Fitch regards as a credit positive. Debt service accounted for an affordable 7.1% of 2011 spending despite the rapid pay-down of debt. Debt guidelines limit debt service to 9.5% of general fund revenues.
The FYs 2013-2018 proposed capital improvement plan totals $216.6 million, and will be funded by bonds ($125.7 million), state-derived revenue, and pay-as-you-go sources. The planned annual of amount of debt to be issued approximates the annual amount of debt amortized and therefore the debt profile is expected to remain low.
PENSION FUNDING
The county historically contributes the full annual required contribution (ARC) for its three defined benefit pension plans and one defined contribution plan. These obligations consumed an affordable portion of the budget at approximately 3.1% ($6.9 million) of fiscal 2011 general fund spending. Funded ratios are adequate at between 60%-70%.
The county created an irrevocable trust in July 2007 to fund its other post-employment benefits (OPEB). The county plans to continue to make annual contributions to the trust and expects to fully fund its OPEB ARC in 2019.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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