Fitch Rates Culpeper County, VA's GOs 'AA'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following general obligation (GO) bonds of Culpeper County, Virginia (the county):
-- $25 million GO school bonds, series 2012.
Bond proceeds will be used to provide $20 million in new money to complete school renovations and $5 million of refunding bonds. The bonds will sell via competitive sale Sept. 18.
In addition, Fitch affirms the following ratings:
-- $865,000 in GO Bonds at 'AA';
-- $48.96 million public facilities lease revenue bonds, series 2005, issued by the Culpeper Industrial Development Authority, at 'AA-'.
The Rating Outlook is Stable.
The bonds are general obligations of the county, secured by its full faith and credit and unlimited taxing power. The lease revenue bonds are secured by lease rental payments, subject to annual appropriation, to be made by the county to the IDA.
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: The county's financial position is underscored by ample reserves, healthy liquidity, and prudent financial management.
NARROWLY FOCUSED BUT STABLE ECONOMY: Major employers represent the health care and retail sectors and a large number of residents commute out-of-county for employment. The county's employment base proved very resilient during the recession and continues to support income characteristics and a level of unemployment favorable to the U.S. average. There has been some recent success in the county's pursuit of additional growth and diversification, mainly in the technology.
FAVORABLE DEBT PROFILE: Given the lack of any additional debt borrowing plans over the next five years, debt ratios should decline and remain affordable.
APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA-' rating on the lease revenue bonds is one notch lower than the county's GO rating, reflecting risk to annual appropriation and a leasehold interest in essential educational assets.
STABLE ECONOMIC PERFORMANCE
Culpeper County is located west of Interstate-95 in central Virginia, approximately 75-85 miles from both Washington, D.C. and Richmond. The county's population increased by an average annual rate of 3.2% over the past decade, requiring the county to plan strategically to meet infrastructure needs and contributing to an increased but still quite affordable debt load. The 2011 population of 47,476 reflects a more modest 1.7% year-over-year growth rate.
Fitch considers the local employment base to be somewhat narrow yet stable. The county's employment base held fairly firm during the recession, experiencing two years of relatively modest annual declines of 0.2% in 2007 and 1.1% in 2010. Over the prior 12 months growth has been lackluster (0.3% compared to 1.7% for Virginia and 2.2% for the U.S.) but the county's rate of unemployment (6.5% in May) remains solid compared to the U.S. (8.4%) and Virginia (6%). According to the Virginia Employment Commission, employment is expected to grow at an annual rate of 1.3% through 2018.
Local employers include the Culpeper County Public Schools (1,100), Wal-Mart (500), Culpeper County (478), Masco Builder Cabinet Group (340), and Coffeewood Correctional Center (300). The health services sector, which represents 15% of the employment base, is anchored by the Culpeper Regional Hospital, which the second largest employer with nearly 700 employees. The hospital has recently partnered with the University of Virginia Medical Center to provide specialty care and a primary care network of physicians.
Prospects for diversification are best highlighted by a growing presence of data security companies supported by a robust fiber optic system in place and five technology zones located along the US-29 corridor. Terremark Worldwide, Inc. is accelerating its $600 million capital investment and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international company that provides a platform to exchange standardized financial messages, employs nearly 200 people. Wealth indicators are on par or exceed national averages.
STRONG RESERVES CONSISTENTLY MAINTAINED
The county's sound financial profile encompasses ample financial flexibility and adherence to conservative fiscal policies. The county has handily met its reserve policy of maintaining an unassigned, undesignated general fund balance equal to 10% - 15% of revenues, including those of the general funds and schools, with historical reserve levels ranging from 17% to 31%. The unrestricted balance (the sum of assigned, unassigned and committed under GASB 54) at the end of fiscal 2011 equaled a substantial $28 million or 36.3% of general fund spending following net surplus operations of $2.1 million on the year. The surplus is mainly due to a $2.99 million transfer in which was a repayment to the general fund for water taps purchased during fiscal 2008.
2012 RESULTS & 2013 BUDGET SHOULD YIELD MODEST RESERVE USE
The fiscal 2012 budget was adopted with a $5.56 million general fund balance appropriation in addition to a 9 cent tax rate increase to $0.74 per $100 of assessed value (AV) to help offset the 12.3% decline in the county's tax base between fiscal 2011 and 2012 following reassessment. Management expects to report actual year-end results that reflect a modest use of fund balance of approximately $1 million (1.2% of projected spending) due to an uptick in sales tax revenues and conservative budgeting.
The fiscal 2013 adopted budget is balanced with a total real estate tax rate increase of $0.06 per $100 of AV and a lower $4.56 million fund balance appropriation. The county's tax rate remains competitive despite the recent increases which given that approximately 60% of revenues are generated from real estate tax revenues is essential.
Fitch notes the budget does not include any furloughs, layoffs, or pay/benefit reductions to existing personnel, but funds a 2.4% salary increase, as well as an additional 5% salary increase to employees to offset the new 5% employee retirement plan contribution. The budget funds a $1.3 million contribution to pay-as-you-go capital. Given the county's historical financial performance, Fitch expects management to continue to maintain sound reserve levels and to once again record favorable operating performance assuming tax base growth resumes.
ABSENCE OF BORROWING PLANS SHOULD MAINTAIN AFFORDABLE DEBT POSITION
The county's debt burden is average and should decline over the near term given the lack of additional borrowing plans based on the current capital improvement plan (CIP). Overall debt equals $2,378 on a per capita basis and 2.2% of market value, while amortization is slightly above average at 53% within 10 years.
Although debt ratios have increased over the past decade in response to capital financing to address the needs of the growing population, the county states that it has addressed its most pressing infrastructure requirements and does not foresee the need for any additional borrowing for infrastructure. The county's CIP totals $63.3 million of which $43.1 million is for general government projects. Approximately $20 million will be funded with the current issuance while the remainder will be funded through pay-go spending.
Other long-term liabilities are easily managed. The county has consistently paid in full the annual required contribution to the Virginia Retirement System (VRS), which equaled $1.6 million in fiscal year 2011 or a modest 2% of spending. The actuarial required contribution to amortize the county's other postemployment benefits is very manageable, at less than 1% of spending, although the county currently funds this cost on a pay-as-you-go basis.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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, Virginia Employment Commission, Virginia Economic Development Partnership.
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
U.S. Local Government Tax-Supported Rating Criteria
Citybizlist Partner News
- Rosenberg Martin Greenberg, LLP - Should Technology Reinvent the Classroom?
- Merritt Properties - Greater Baltimore Board of Realtors Signs Lease for Office Space at Merritt’s Timonium Center
- MacKenzie - MacKenzie Commercial Real Estate Recap - April 27th - May 10th, 2013
- St. John Properties - Bill Holzman Promoted to VP, Retail Leasing for St. John Properties