NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings affirms the following Yakima County, Washington (the county) bonds:
--$4.315 million general obligation limited tax (GOLT) bonds series 2002 at 'A+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Financial margins, while narrowing, remain adequate. Despite recent draws, the unreserved General Fund balance remained at 9.1% in FY 2009. Officials anticipate adding to reserves in FY 2010 and a return to the 11% policy level by 2012.
--The county's jail operations will come under pressure as a majority of contracts from some sending municipalities are not being renewed. Officials have responded by cutting expenditures and expect the reserves in the corrections fund to provide an adequate cushion until corrective actions take effect.
--The local economy remains centered on agriculture, with a growing, winery-related tourism segment. The tax base has shown little cyclical volatility. After a modest 0.3% decline in 2010, assessed valuation (AV) grew by 3.9% in 2011.
--Debt levels are modest and future borrowing plans appear manageable, given the rapid amortization of existing debt.
KEY RATING DRIVERS:
--Maintenance of fundamental budgetary balance and adequate reserve levels to offset the lack of flexibility imposed by statutory restrictions on raising revenue;
--The continued self-sustaining nature of the county jail operations.
SECURITY:
Series 2002 bonds are secured by the county's general obligation, limited tax pledge.
CREDIT SUMMARY:
Yakima County is located in south-central Washington, approximately 145 miles southeast of Seattle. The county has experienced moderate population growth of about 1% per annum since the 2000 census. Prior to the recession, the county experienced assessed valuation growth averaging 5-6% annually. After recording a modest 0.3% dip in 2010, AV resumed growth of 3.9% in 2011. Officials report development activity continues in the retail/commercial and residential sector, which should add to tax base diversity.
The county's employment base is exhibiting a marked rebound since recording high unemployment rates, greater than those of the state and nation, during the recent economic downturn. The seasonally unadjusted unemployment rate of 7% for October 2010 is well below the state level of 8.5%, and the national average of 9%, and the labor force is expanding.
Financial margins, while narrowing, remain adequate. The county general fund has recorded moderate operating deficits in recent years, but reserves are still sufficient at 9.1% ($4.8 million) of spending on an unreserved basis. County jail operations, which are outside of the general fund, are coming under increased pressure with the loss of 20 of its 30 local municipal contracts, which translates to an annual revenue loss of $9.4 million. Officials built up sizable reserves in the correction fund (reported to be $5.5 million as of fiscal 2010 year end) in anticipation of the loss, and believe that those reserves will sustain the operation while necessary expenditure adjustments are made. Thirty-four jail employees have been laid off, 14 empty positions eliminated, and other spending items have been curtailed while the county pursues alternative sources of revenue, including increasing the number of state and federal prisoners. The county has also increased the amount it charges itself for detention of its own inmates from 85% to 90% of the actual cost. To date, these and other corrective actions have compensated for much of the lost revenues, but a $1.2 million gap remains for 2011. The county is continuing to pursue new avenues for revenue generation; absent these, the county will cover the gap from unreserved balances in the correction fund.
The county's favorable debt profile is characterized by below average debt levels and rapid amortization rates. Over 70% of the county's debt is scheduled for retirement within 10 years. Future borrowing plans appear manageable. The county is studying a major courthouse project, which is expected to require voter-approved borrowing of between $25 million and $60 million, depending on task force recommendations.
The county's pension liabilities are limited to its participation in several state pension plans. The county's annual contributions, which are determined by state statute, were $4 million in fiscal 2009, or a manageable 7.4% of spending. The county offers other post-employment benefits (OPEB) on a direct cost funding basis for law enforcement personnel, which it funds on a pay-as-you-go basis, with the fiscal 2009 contribution equal to less than 1% of spending.
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, LoanPerformance, Inc., IHS Global Insight, SDM Advisors.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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