NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Loudoun County, Virginia (the county) general obligation (GO) bonds:
--$106.4 million GO public improvement and refunding bonds, series 2013A;
--$68.1 million taxable GO refunding bonds, series 2013B.
Bond proceeds will be used to finance various general government and school projects as well as refund certain maturities of GO bonds for debt service savings. The bonds will be sold via negotiated sale on May 29th.
In addition, Fitch affirms the following ratings:
--$777 million of outstanding GO bonds at 'AAA';
--$71.1 million of outstanding lease revenue bonds issued by the Industrial Development Authority of Loudon County, VA, at 'AA+.
The Rating Outlook is Stable.
SECURITY
The GO bonds are supported by a pledge of Loudoun County's full faith and credit and unlimited taxing power.
The lease revenue bonds are limited obligations of the Industrial Development Authority of Loudoun County, VA (the authority) as conduit issuer and are payable from lease rental payments from Loudoun County to the trustee. Payments are equal to debt service and subject to annual appropriation by the county board.
KEY RATING DRIVERS
ROBUST ECONOMY: The county's strong and diverse economic base benefits from its location near Washington, D.C., with high wealth levels, a highly educated labor pool and low unemployment.
SOUND FINANCIAL POSITION: Reserve levels and financial flexibility remain sound supported by prudent fiscal policies and planning.
MODERATE DEBT LEVELS: The county continues to adhere to good debt management guidelines, which have allowed overall debt levels to remain moderate. Future needs according to the capital improvement plan will increase debt ratios but not significantly. Debt amortization is rapid.
APPROPRIATION DEBT: The rating on the lease revenue bonds reflects the general credit characteristics of the county and incorporates risk to annual appropriation by the county board of supervisors to make rental payments equal to debt service. Leased assets are essential and are subject to seizure should the county default on its debt service obligation.
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 'AAA' rating and Stable Outlook reflect Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Located west of Washington, D.C., the county is among the fastest growing in the country. Population nearly doubled during the last decade and is expected to continue growing as development related to Dulles International Airport and the capital attract jobs to the county. The 2012 estimated population is 336,898. While the county maintains significant agricultural activity and open land in its western portion, the eastern portion has become increasingly developed.
DYNAMIC LOCAL ECONOMY
An established business base of federal contractors and high-tech companies leverage Loudoun's highly educated labor pool, technology infrastructure, and an extensive transportation network anchored by Dulles International Airport. The county's wealth indicators are well above state and national averages, and unemployment remained low at 4.1% as of February 2013. Loudoun's median household income is more than double the national average and 90% higher than the state average.
The Metropolitan Washington Airports Authority (revenue bonds rated 'AA-' with a Stable Outlook by Fitch) is in the process of completing phase I of its Metrorail extension project. Phase II of the project would expand the Metrorail to Dulles International Airport with three stops in eastern Loudoun. Funding for phase II includes approximately $300 million in county contributions that have been incorporated in the county's capital improvement plan (CIP). Fitch believes that the phase II expansion will positively impact the county's dynamic underlying economy.
SEQUESTRATION IMPACT ON BUDGET EXPECTED TO BE MINIMAL
Fitch estimates fiscal 2014 governmental fund revenues derived from the federal government to be $21.2 million. The loss associated with an 8.2% reduction due to sequestration is a modest $1.7 million, or less than 1% of the adopted budget.
Indirect effects from sequestration cuts are expected to have some impact on the county's economy, given that approximately 25.5% of the labor force either work directly for the federal government or are employed by a federal contractor. However, the county generates the majority (75%) of its revenue from property taxes, which is not anticipated to be affected by potential declines in disposable income as a result of the furloughs planned due to sequestration. Fitch believes the county has solid spending reduction flexibility, as evidenced by the reduction of expenditures during the recession which included cuts in capital spending and staff reductions.
STRONG FISCAL MANAGEMENT MARKED BY 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 net surplus in the general fund and an unrestricted fund balance totaling $198.6 million or 18.1% of operating expenditures and transfers out.
The committed portion of the unrestricted general fund balance includes a fiscal reserve equal to 10% of operating revenues in the general and school funds, or $109 million. The fiscal reserve is designed as a source of funding during major economic, natural, or national emergencies and not as a source for funding recurring expenditures. The fiscal reserve may be used in certain circumstances to offset revenue variances, though this has not been done to date. Replenishment of the reserve fund after a withdrawal is to occur over a three-year period.
The county was able to generate positive operating results in fiscal 2012, mainly due to favorable variances in local sales and use tax, property taxes receipts due to increasing vehicle values, and expenditures savings resulting from personnel vacancies and cost reductions. There are no statutory or charter caps or restrictions on tax levy or tax rate growth.
ESTIMATED FY2013 RESULTS BEAT BUDGET
The fiscal 2013 adopted budget includes a five-cent reduction of the property tax rate (which is competitive in comparison to neighboring counties) and a higher $24.4 million general fund balance appropriation. The appropriation offsets the impact of the tax rate decrease and funds capital projects and asset replacement.
According to management, local tax revenue is projected to exceed budget in the areas of personal property and sales tax, and expenditures are expected to be less than budget due to operating efficiencies and debt service savings. Estimated fiscal year-end 2013 results reflect full replenishment of the appropriated fund balance and positive operating variances.
FISCAL 2014 BUDGET
The proposed fiscal 2014 budget is a 3.8% increase ($42 million) from fiscal 2013. The budget includes a real property tax rate decrease of 3 cents or 2.4% from fiscal 2013 and a
$46.4 million fund balance appropriation ($22 million increase over the fiscal 2013 appropriation). The proposed budget funds a 2% merit-based compensation increase for county employees, $21.6 million in additional funding for schools, and approximately $17 million in additional moneys for pay-go capital.
Given the county's history of strong financial performance, Fitch expects operations to remain positive and reserves to remain in compliance with policy.
AFFORDABLE DEBT PROFILE
The overall debt burden is moderate, with debt per capita at $3,661 and debt as a percent of market value at a low 1.8%. Pressure on the county's debt profile from the sizable $1.4 billion CIP is lessened to a degree by the wealth of the county's tax base and the county's debt affordability guidelines.
The county remains compliant with debt guidelines that restrict debt service to a manageable 10% of spending (total governmental and education spending) while ensuring rapid amortization of outstanding principal, currently at 74% within 10 years. Debt service spending as a percentage of total governmental spending (less capital) is a high 15.2% in fiscal 2012; however, Fitch recognizes the significant portion of county debt service related to the school board component unit when considering the county's debt carrying burden.
The 2014-2018 CIP totals $1.38 billion. The bulk of capital needs are to alleviate growth pressures within the county's well-regarded public school system and to fund various transportation projects including the county's portion of the phase II Dulles rail expansion. Projected debt financing totals are over $1.09 billion through fiscal 2018, though debt ratios are expected to remain moderate and under the 3% fiscal policy target.
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 2% of total spending in fiscal 2012. The plan's funded ratio as of fiscal 2012 was satisfactory at 79%.
The county also administers a defined benefit plan for volunteer fire and rescue personnel. The Loudoun County Board of Supervisors maintains the authority to establish and amend the benefit provisions of the plan. The 2012 contribution accounted for just 0.07% of spending and the plan is well-funded.
OPEB is currently funded on a pay-go basis and costs for general government represented less than 1% of spending in fiscal 2012 or 84% of the ARC. Pension and OPEB costs are expected to remain low.
APPROPRIATION DEBT
Legal provisions are solid. The bonds, issued by the Industrial Development Authority of Loudoun County, are secured by lease payments received by the trustee (as assignee of the authority) from the county, in amounts equal to debt service. Lease payments are subject to annual appropriation. In the event of non-appropriation, the trustee can take possession of the leased property (public safety building, detention center and administrative building) and the county would be unable to use it for its essential government purposes.
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, and RealEstate Business Intelligence.
Applicable Criteria and Related Research:
--'
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=791452
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