NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Waukesha County, WI (the county) notes:
--$17 million general obligation (GO) promissory notes, series 2013.
The notes are scheduled for competitive sale on April 23. Proceeds will be used to fund various capital improvements in the county.
In addition, Fitch affirms the following ratings:
--Approximately $68.4 million in outstanding GO promissory notes, at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The notes are general obligations of the county payable from an unlimited ad valorem tax levied on all taxable property within the county.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: Prudent fiscal policies and budgetary conservatism have resulted in positive financial results highlighted by solid reserve levels.
STABLE AND WEALTHY ECONOMIC BASE: The economy is stable and well diversified, characterized by historically low levels of unemployment and a growing, affluent, and well-educated population.
MODEST DECLINE IN PROPERTY TAX BASE: The tax base is strong and well diversified but has experienced moderate declines in taxable assessed value over the last few years. This risk is mitigated by the county's willingness to raise property tax rates over the last four years.
MANAGEABLE DEBT PROFILE: The county adheres to strong debt management policies, which have kept overall debt levels modest. These levels should be sustainable given manageable capital needs, rapid debt amortization, and a 20% pay-as-you-go policy for capital projects. The county continues to fully fund pension obligations and has no other post-retirement benefit obligations.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to the continuation of strong financial management and control policies which have produced favorable financial results and considerable margins of flexibility.
CREDIT PROFILE
Waukesha County is located in southeastern Wisconsin, directly west of Milwaukee County and 100 miles northwest of Chicago. The county is part of the Milwaukee MSA and is the third most populous county in the state. According to the U.S. Census, the 2010 population totaled 389,891, an 8.2% increase since 2000. The affluent residents have the highest median household income and the second highest per capita income in the state.
STRONG FINANCIAL POSITION AND FLEXIBILITY
Management's prudent fiscal practices have produced solid reserve levels with ending unreserved/unrestricted general fund balances exceeding 30% of spending for at least the last five years. Additionally, Fitch believes the county has considerable revenue-raising flexibility given low property tax rates and untapped sales tax capacity. Per state statute, the county may levy a 0.5% sales tax and local motor vehicle registration fees, neither of which it currently levies. The county estimates in 2012 the untapped sales tax was worth $34 million. The county is one of only 10 of the 72 counties in the state that does not have a sales tax and has no current plans to levy one.
A $2.3 million net operating surplus, after transfers, was recorded in fiscal 2011 (year-end Dec. 31). This was a positive variance from the adopted budget, which called for a $3.5 million deficit, and included about $1 million in pay-go capital funding. The county ended 2011 with a $54.1 million unrestricted general fund balance (the sum of committed, assigned and unassigned balances under GASB 54), equivalent to a strong 34.3% of general fund expenditures.
Unaudited preliminary results for fiscal 2012 show a modest net operating deficit after transfers in the general fund of $1.3 million, versus the original budget which anticipated a $5.4 million reduction in general fund balance. The projected total ending general fund balance of $66.3 million is a healthy 43.0% of general fund spending.
The 2013 general fund budget incorporates a $2.8 million use of fund balance primarily for a $1.2 million contingency fund and capital projects. The budgeted ending general fund balance of $60.7 million would represent a still strong 38.6% of general fund spending.
The county maintains a formal fund balance policy whereby unassigned fund balance must equal a minimum 11% of general and special revenue fund spending, with a current target of 15%, or about eight weeks of working capital for operations. By this measure, the 2011, estimated unaudited 2012, and projected 2013 results of 17.2% and 18.7%, and 17.4%, respectively, are above the county's policy and target. Fitch expects the county to continue to maintain healthy reserve levels given management's history of strong fiscal management and conservative budget practices.
DIVERSE AND WEALTHY ECONOMIC BASE
The local economy is diverse and includes healthcare, education, retail and manufacturing. Although the manufacturing sector represents approximately 19% of total county employment, it is very broad and includes one of the country's largest printing companies (Quad Graphics) and General Electric Medical Systems, both among the largest employers in the county. In July 2012, Kohl's Department Stores, the largest employer with approximately 5,258 employees, announced the expansion of their corporate headquarters. The development is expected to be valued at $250 million and to add 3,000 corporate office jobs over the next 12 years.
The diverse economy has resulted in unemployment rates that have historically been well below state and U.S. averages. The December 2012 unemployment rate was 5.6%, the same as reported in December 2011, and well below the state and national averages of 6.6% and 7.6%, respectively.
MODERATE TAX BASE DECLINES OFFSET BY PROPERTY TAX INCREASES
The county's tax base comprises 75% residential property. Reflecting the weak housing market, county taxable values have declined by a cumulative 10% since 2008. Management is projecting a leveling off, as residential building permits are trending positively. To offset the taxable value declines, the county has raised the property levy rate from $1.87 per $1,000 of equalized valuation in 2009 to $2.11 in 2012. Despite these increases, the county's property tax rate continues to be the lowest among counties in the state that do not impose a sales tax, giving the county flexibility for future increases.
The tax base is well diversified with the top 10 taxpayers comprising a very small 2.3% of taxable assessed value. Property tax collections, which make up 50% of general fund revenues, continue to be strong, with total collections averaging over 99% for the last five years.
MANAGEABLE DEBT PROFILE
The county's policy of funding 20% of capital projects on a pay-as-you-go basis coupled with exceptionally rapid amortization - all debt is amortized in 10 years - results in a moderate-to-low debt burden of $2,226 per capita or 1.8% of market value. The county's 2013-2017 five-year capital plan totals $89.2 million and includes about $57 million (including this issue) in additional new debt through 2017. Annual debt issuance was higher than normal in 2012 and 2013 at $20 million and $17 million, respectively, due primarily for the funding of a new Health and Human Services building, which is scheduled for September 2013 occupancy. The county is projecting issuance of $10 million annually in 2014 through 2017, but a possible remodeling or construction of the courthouse facility may increase those years' borrowings. Debt service represents a moderate 7.9% of 2011 general fund and debt service fund expenditures.
County employees participate in the Wisconsin Retirement System, a cost-sharing multiple-employer defined benefit plan. The plan is fully-funded and still well-funded at 97.7% (as of Dec. 31, 2011) when adjusted by Fitch to reflect a 7.0% discount rate. The county continues to fully fund its actuarially-determined annual required contribution and does not provide or subsidize material post-employment health benefits to any of its employees. County retirees are eligible to participate in a health plan for which they pay the full premium amount. Carrying costs for pension and debt service are manageable at 15.1% of governmental 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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated 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=788916
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