New York--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'AA-' rating on the following general obligation (GO) bonds of Blount County, Tennessee (the county):
--Approximately $64 million of outstanding bonds, series 2004, 2004B, 2005, and 2011.
Fitch concurrently affirms the 'AA-' rating on approximately $29 million in local government public improvement bonds issued by the Blount County public building authority (PBA), series A-5-A, B-16-A, and B-10-A.
The Rating Outlook is Stable.
SECURITY
The GO bonds are direct general obligations of the county to which it has pledged its full faith and credit and unlimited taxing power as security.
The local government public improvement bonds are a limited obligation of the PBA, secured by receipts under a loan agreement between the PBA and the county, to which the county has pledged its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
SOLID FINANCIAL POSITION; UNEVEN HISTORY: The county's current financial position is solid, supported by diverse and growing revenues and sound fund balance levels and liquidity. However, operating and reserve volatility over the prior decade is viewed with some concern.
MIXED DEBT PROFILE: Key debt ratios are moderate. The county reports no major infrastructure needs or borrowing plans, but the absence of a long-term approach to capital planning somewhat skews the debt outlook. Carrying costs are high but stable, and variable rate exposure is high but appears well managed.
SOUNDLY PERFORMING ECONOMY: County employment has performed well over time compared to the state and nation. The county economy benefits from its proximity to Knoxville and stable presence of prominent manufacturers.
RATING SENSITIVITIES
IMPROVED CONSISTENCY: Positive rating movement is achievable over the intermediate term but will hinge on the county's ability to improve its overall operating consistency. Adoption of prudent financial and debt policies and procedures would be considered favorably.
CREDIT PROFILE
Blount County is located in east central Tennessee bordering the Great Smokey Mountains National Park. The county seat of Maryville is located approximately 15 miles south of Knoxville. The county has a 2012 estimated population of 124,000.
ECONOMY CONTINUES TO GROW JOBS, RECOVER FROM RECESSION
Blount County monthly non-farm employment has increased over the prior year for 33 consecutive months, and now comfortably surpasses the pre-recession peak. As has been the case for much of the prior decade, the county's December jobless rate of 6.2% remains lower than that of Tennessee and the U.S. (both 7.6%). County income levels are on par with the state but about 10% below the U.S. norm.
The county remains somewhat exposed to several large taxpayers and employers, most notably auto parts manufacturer Denso, aluminum producer Alcoa, and home manufacturer Clayton Homes. The long-standing presence of these entities within the county and capital intensive nature of operations, particularly by Denso and Alcoa, temper any risk.
The Knoxville metropolitan statistical area (MSA), with an employment base of more than 355,000 (nearly six times that of the county), has likewise enjoyed good job growth and comparatively low unemployment at 6% in December. Stability is derived from the University of Tennessee and UT Medical Center. The Oak Ridge National Laboratory stimulates a growing research and development sector which could lend to higher income metrics in the future.
CONTROLLED SPENDING, REVENUE GROWTH LEAD TO SOLID 2012 RESULTS
In fiscal 2012 the general fund generated an operating surplus (after transfers) of $2.2 million or 5.3% of total spending. Spending was lower by $1.3 million or 3.2% on the year, as revenue improved $1.7 million or 4.1% largely due to property tax gains.
The unrestricted fund balance at the close of fiscal 2012 totaled $9.1 million or a sound 22% of spending. Reserves are much improved from the very low unreserved fund balance of $270 thousand (less than 1% of spending) in fiscal 2006.
The absence of a formal reserve policy is a credit weakness; however, management reports no expectation for meaningful use of reserves in the short-term.
BALANCED GENERAL FUND BUDGET IN 2013
The county adopted a balanced general fund budget for the second consecutive year in fiscal 2013, following two straight years in which reserves were budgeted for operations. Property taxes account for approximately 50% of total revenue, and are not subject to restriction on increasing the millage rate or levy. The tax base has also been fairly resilient, and single family home prices are up several percentage points from the prior year according to the Case-Shiller Quarterly Index.
Management reports there are no material revenue or expense variations from the budget based on available year-to-date results.
SLOW PAY-OUT, HIGH CARRYING COSTS
The county's net overall debt ratios are moderate at $2,381 per capita and 2.6% of market value. Infrastructure needs are reportedly very modest, but the absence of a long-term capital planning approach creates some uncertainty. The county does not plan to issue any additional debt.
The county's slow principal amortization (36% within 10 years) and high carrying costs for debt, pension, and other post-employment benefits (OPEB) (32% of governmental fund spending in fiscal 2012) is of some concern, as they may restrict future capital and operating initiatives.
ABOVE-AVERAGE VARIABLE RATE EXPOSURE
Approximately 46% of the county's direct debt is variable rate; Fitch generally considers variable rate debt above 25% as high. Derivative agreements with Deutsche Bank (Fitch long-term rating of 'A+') serve to hedge the county's interest rate exposure. The market value of the swaps is highly negative for the county, but there is no risk to collateral posting, and the bank may only terminate following a county event of default. The county will monitor the market for economically favorable opportunities to wind down its variable rate position over time.
PENSION LIABILITIES WELL FUNDED
The county participates in an agent multiple-employer pension plan, which is very well funded at a rate of 91.4% (adjusted by Fitch to assume a 7% investment rate of return). Unfunded liabilities related to pension and OPEB, which are funded on a pay-go basis, total about $14 million or a very low 0.1% of market value.
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, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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