SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following Tulare County, California (the county) ratings:
--Implied general obligation (GO) at 'AA-';
--$14.4 million 1998 certificates of participation (COPs) at 'A+'.
The Rating Outlook is Stable.
SECURITY
The COPs are secured by the county's covenant to annually budget and appropriate lease rental payments for the use and occupancy of certain essential governmental facilities, subject to abatement, and are supported by standard insurance requirements and a cash-funded debt service reserve fund.
KEY RATING DRIVERS
LIMITED BUT STABLE ECONOMY: Tulare County's economy is primarily based on agriculture with correspondingly low income and wealth levels, as well as high unemployment. Taxable assessed values saw little change during the recent recession and the county's economy has benefited from continuing strong demand for agricultural commodities.
HEALTHY FINANCIAL POSITION: Management has responded promptly to revenue shortfalls, resulting in reduced expenditures and balanced operations. Unrestricted general fund balances are healthy and the county retains considerable financial flexibility.
MANAGEABLE LONG-TERM LIABILITIES: Overlapping debt levels are low and outstanding direct debt amortizes rapidly. Carrying costs for debt service and retiree benefits are affordable.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the county's consistently positive operating results and limited agricultural economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Tulare County is located near the geographic center of California and has a population of approximately 450,000. The county's borders stretch from the Central Valley to the peaks of the Sierra Nevada Mountains, and include large portions of national forests and parklands. The local economy is concentrated in the agricultural sector and Tulare County is the largest producer of dairy products in the U.S., with milk production alone valued at more than $2 billion in 2011.
LIMITED BUT STABLE ECONOMY
Consistent with this agricultural context, wealth and income levels for county residents are low, at 60 - 80% of state and national averages. Unemployment rates have consistently exceeded national benchmarks and remain very high at 15.7% as of December 2012. Population growth has been relatively high at about 1.9% annually, roughly double state and national rates.
Taxable assessed values (TAV) have proven stable through the recent recession, supported by strong demand for agricultural properties and a limited rise in residential values prior to the downturn. TAV levels in fiscal year 2012 were just 1% below pre-recession peaks.
HEALTHY FINANCIAL POSITION
The county ended four of the past five fiscal years with operating surpluses and completed fiscal 2012 with an unrestricted general fund balance equal to a healthy 11.7% of spending. Prudent management actions to reduce expenditures over the past five years supported these results, as has a strong rebound in tax revenues, which increased by 7% in fiscal 2012. A planned expansion of the county's jail capacity could increase expenditure pressures but will not become operational for several years. Fitch expects the county to maintain balanced operations despite such challenges based on its strong record of reducing spending to match available resources.
LIMITED LONG-TERM LIABILITIES
The county has limited exposure to long-term liabilities. Debt levels are fairly low, with overall debt at $1,263 per capita or 2.0% of AV, and 84% of the county's direct debt amortizes within five years. The county's pension plan is adequately funded at 89% of liabilities, or 81% using Fitch's 7% investment return assumption. Liabilities for other post-employment benefits are limited to the cost of an implicit subsidy for retirees who participate in the county's group health insurance plan at their own cost. Carrying costs for debt service and retiree benefits were notably low at 7% of noncapital governmental expenditures in fiscal 2012 and should drop further following the county's recent final debt service payment on pension obligation bonds.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and IHS Global Insight.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=788796
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