NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following Washington County, Maryland (the county) general obligation (GO) bonds:
--$12 million GO public improvement bonds of 2013;
--$6.18 million GO refunding bonds of 2013.
The bonds will be sold via negotiated sale May 7. Proceeds will be used to pay the cost of various capital projects and to refund certain outstanding GO bonds.
In addition, Fitch affirms the following ratings:
--$124 million of outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are GOs of the county, secured by its full faith and credit pledge and unlimited taxing power.
KEY RATING DRIVERS
SOUND FISCAL MANAGEMENT: Washington County's record of surplus operating performance and strong reserve levels reflect sound financial management and planning.
FAVORABLE DEBT PROFILE: Overall debt levels are expected to remain low based on the county's additional capital needs and borrowing plans, the rapid amortization of outstanding debt, and continued adherence to prudent debt affordability guidelines.
ADEQUATE ECONOMIC BASE: Employment opportunities are sufficiently diverse but are generally focused in lower-wage sectors including manufacturing, distribution, retail, and government. The county's unemployment rate is slightly elevated and remains above the state and national averages despite solid recent job gains.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
Washington County is located in northwestern Maryland. The estimated 2012 population is 149,180.
STRONG HISTORIC FINANCIAL PERFORMANCE
A string of operating surpluses over at least the past decade has allowed the unreserved general fund balance to increase from $14.7 million or 10.8% of spending and transfers out at year-end 2002 to $37.4 million or an ample 18.6% of spending excluding refunding bond costs at year-end 2012. The county's fund balance policy requires an unreserved fund balance equal to at least 17% of spending.
CONTINUED POSITIVE OPERATIONS EXPECTED FOR FISCAL 2013
The fiscal 2013 budget remains essentially flat year-over-year, including a $1.1 million fund balance appropriation and no tax rate increase. Year-to-date, income and recordation tax revenues are performing better than budget and expenditures are tracking under budget, consistent with historical trends. Management expects to fully replenish the fund balance appropriation and add to fund balance at year end.
Fitch views the county's margin under the state income tax rate cap and a regionally competitive property tax rate as important measures of financial flexibility given their combined dominance of the general fund revenue base.
The preliminary fiscal 2014 general fund budget proposal is a 2.5% increase ($4.8 million) over fiscal 2013. The increase includes a $1.3 million fund balance appropriation and no property tax rate increase. The increases in costs are mainly due to higher education costs, which are mostly related to the shift in teachers' pension costs, and increased public safety costs. The budget will be adopted in May.
AVERAGE TO BELOW-AVERAGE ECONOMIC INDICATORS
Washington County is located in northwestern Maryland, approximately 75 miles from Baltimore and Washington, D.C. While housing prices have rebounded year-over-year, modest tax base declines are expected to continue through 2015 primarily due to a triennial reassessment of Hagerstown (22% of tax base). The tax base is relatively diverse with the top 10 taxpayers accounting for less than 5% of assessed value (AV).
The county's unemployment rate of 8.8% as of February 2013 has improved from 9.5% a year earlier. Unemployment typically trends higher than the state and national average, and income indices lag due to the lower-paying industries that serve as the foundation of the county's economy. Among the largest private sector employers are Citi and First Data (both credit card processing), Meritus Health, Volvo Powertrain, and FedEx.
Fitch notes the improved unemployment rate reflects both job growth and some contraction in the labor force gains. New and expanding businesses led to the creation of more than 700 new jobs, approximately $61.5 million in investments, and more than 383,300 square feet of space either under construction or leased during calendar year 2012. In addition, National Golden Tissue, a manufacturer of processed paper products, will be expanding its operations over the next three years. The capital investment will be between $30 million-$50 million and approximately 340 new jobs will be created.
LOW DEBT RATIOS
Debt levels are modest at 1.8% of AV on an overall basis and $1,566 per capita. Debt service as a percentage of governmental fund spending (less capital project funds) is a low 6.8%.
The fiscal years 2014-2018 capital improvement plan (CIP) totals nearly $235 million, of which 31% is dedicated to education, 24% for road improvements, and 9% for water quality projects. Tax-supported bonds are expected to fund $74 million of the CIP, which would not add significantly to the county's debt burden given the fairly rapid amortization of outstanding principal of 66% in 10 years. Additional CIP funding sources include general fund pay-go of $18 million.
The county prudently maintains debt affordability guidelines and will adjust future borrowing to remain in compliance. The guidelines are conservative with debt per capita capped at $1,640 and debt service as a percentage of general fund revenues not to exceed 8%. The county's debt statistics remain inline with all the guidelines. The county's debt structure is fairly conservative with all debt in fixed-rate mode and no exposure to swaps or derivatives.
OTHER LONG-TERM LIABILITIES
The county administers a single-employer defined benefit pension plan for employees and a length of service award program (LOSAP). For fiscal 2012, the county contributed $4.4 million which is equal to 89% of the annual required contribution (ARC). According to management a payment following the close of the fiscal year to fully fund the ARC. The county plans to make full ARC payments during the fiscal year when due going forward. As of July 2011, the funded ratio was 65.8% (71.3% before adjusting the investment rate to 7%), which Fitch considers somewhat low. Total required pension contributions for fiscal 2012, including the smaller LOSAP, were an affordable $5.5 million or a modest 2.8% of governmental fund spending (less capital project funds).
The county contributed $1.6 million (or 0.8% of spending) which was equal to a notable 144% of the ARC, for other post-employment benefits (OPEB). The county established a trust fund to account for activities related to OPEB and had a balance of $9 million as of fiscal year-end 2012. The unfunded liability is modest at $9.4 million or less than 1% of market value. Fitch also notes that the county faces a minimal amount of pressure from collective bargaining, as a little more than 10% of the total workforce is unionized.
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, 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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790110
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