NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following general obligation (GO) bonds of Stafford County, VA (the county):
--$23 million GO public improvement bonds, series 2013.
The proceeds of the bonds will be used to fund various transportation and recreation capital projects. The bonds will sell via competitive sale on June 18.
In addition, Fitch affirms the following rating:
--$39.24 million Economic Development Authority (EDA) lease revenue bonds, series 2008 at 'AA'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are secured by the full faith and credit and unlimited taxing power of the county.
The lease revenue bonds are limited obligations of the EDA of Stafford County, payable from payments to be made by the county, subject to appropriation, pursuant to a Master Trust Agreement. The lease revenue bonds are additionally secured by a Deed of Trust granting a lien on certain essential government assets.
KEY RATING DRIVERS
SOUND FISCAL MANAGEMENT: Stafford County's record of surplus operating performance and strong reserve levels reflect sound financial management and planning.
MODERATELY CONCENTRATED ECONOMIC BASE: Moderate concentration in the government and military sector exposes the county to risks arising from potential defense and other federal spending cuts. These risks are mitigated in part by the recognized essentiality of these facilities.
HIGH INCOME METRICS: Wealth levels measured on the basis of median household income are very strong, ranging from 50%-80% above state and national averages.
HISTORY OF LOW UNEMPLOYMENT: Proximity to major employment centers and a skilled labor force contribute to unemployment rates that are quite low.
MANAGEABLE DEBT PROFILE: Debt levels are moderate, and other long-term obligations and future capital needs are not expected to pressure the credit.
LEASE REVENUE BONDS APPROPRIATION RISK: The 'AA' rating on the lease revenue bonds reflects the county's general creditworthiness, the inherent appropriation risk, and the essentiality of the assets securing the lien.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the county's strong economy. Federal budget cuts under sequestration could result in a softening of the regional economy given the preponderance of direct and indirect federally funded employment. However, Fitch does not currently expect the impact to be severe enough to alter the credit fundamentals.
CREDIT PROFILE
Stafford County is located 25 miles south of Washington D.C. and 50 miles north of Richmond, and it benefits from easy accessibility to several interstate highways. Population growth was strong during the last decade at 39%. The estimated 2012 population is nearly 135,000.
STRONG FISCAL MANAGEMENT, HEALTHY RESERVE LEVELS
County finances are well-managed, adhering to long-standing policy guidelines, and include detailed planning for capital and operating needs. Fiscal 2012 concluded with a $6 million operating surplus in the general fund and an unrestricted fund balance totaling $54.9 million or 22.6% of operating expenditures and transfers out, marking the county's fourth consecutive operating surplus.
Over the last few fiscal years, the county has budgeted revenues conservatively and observed consistent growth in overall tax revenues. The county has budgeted conservatively on the expenditure side as well, with actual spending coming in below budgeted expenditures by 3%-8% annually since 2004.
The unassigned portion of the unrestricted general fund balance includes the county's policy reserve equal to 12% of general fund revenues. Use of these reserves requires board appropriation and must be for one-time, non-recurring expenditures. Replenishment is required within three years.
Property tax revenues are the county's largest revenue source at 70% of fiscal 2012 revenues. There are no statutory or charter caps or restrictions on tax levy or tax rate growth, which Fitch notes adds to the county's financial flexibility.
ESTIMATED FISCAL 2013 RESULTS BEAT BUDGET
The fiscal 2013 adopted budget includes a one-cent reduction of the property tax rate and no fund balance appropriation. Management is projecting a fifth consecutive operating surplus of $4.5 million, increasing the unrestricted balance to $59.4 million or an ample 24% of spending. The adopted fiscal 2014 operating budget includes a 2.5% increase ($6.1 million) in spending from fiscal 2013. The budget maintains the current tax rate and does not appropriate fund balance. Fitch expects the county to continue to record favorable operating results and remain in compliance with its fund balance policy given its conservative budgeting practices.
GROWING ECONOMIC BASE WITH SOME EXPOSURE TO SEQUESTRATION RISK
Given the county's proximity to Washington D.C. the main economic driver is the federal government. Quantico Marines Corps Base extends over three local governments, including over 30,000 acres in Stafford County, and provides the county with long-term employment stability. Quantico continues to expand due to recent Base Realignment and Closure (BRAC) legislation.
The FBI is also one of the county's largest employers. Approximately 19% of the county's total labor force consists of civilian federal employees. In addition, a significant portion (about 50%) of the county's labor force is employed outside the county and likely includes additional federal employment exposure.
Defense budget cuts due to sequestration are possible in 2013, but Fitch does not expect these potential cuts to have a significant effect on the county's military facilities due to their essentiality. The county also mitigates sequestration risk with conservative budgeting, strong financial reserves, and continued diversification into the retail, business services, higher education, hospitality, and health care sectors. The newly opened Stafford Technology and Research Center also increases the county's presence in technology. Fitch expects increased economic diversification as the county attempts to offset potential longer term changes in military spending.
AFFORDABLE DEBT PROFILE
The overall debt burden is moderate, with debt per capita at $2,839 and debt as a percent of market value at 2.9%.
The county's ten-year capital improvement plan (CIP) totals a manageable $693 million and will be funded by a mix of bonds, lease revenue bonds, state and federal funding sources, and pay-go. The largest CIP projects are school and transportation-related. Fitch does not expect the county's capital projects to pressure the credit, given the current debt burden and the size of capital needs.
LOW OTHER LONG-TERM LIABILITIES
Pension and other post-employment benefit (OPEB) contributions do not stress financial operations. County employees participate in the state-administered Virginia Retirement System, and the county makes annual payments as determined by the state that equal its annual required contribution, which represented a modest 1.6% of total governmental and school board spending (excluding capital) in fiscal 2012. The county's funded ratio as of fiscal 2012 was adequate at 76% (and an estimated 72% after adjusting the rate of return to 7%).
OPEB is currently funded on a pay-go basis and costs accounted for less than 1% of spending in fiscal 2012. Pension and OPEB costs are expected to remain low and affordable. Combined carrying costs for debt service, pension and OPEB totaled a manageable 13.4% of spending in fiscal 2012.
LEASE REVENUE BONDS SECURED BY ESSENTIAL ASSETS
Debt service payments for the lease revenue bonds are subject to annual appropriation. The lease revenue bonds are additionally secured by a deed of trust granting a lien on several essential leased assets including a library, courthouse, and communications system. The current value of these assets exceeds total principal outstanding.
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, RealEstate Business Intelligence.
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=793363
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