Fitch Affirms Oconee County, South Carolina $17.2MM GOs at 'A+', Outlook to Negative.

NEW YORK -- Fitch Ratings affirms the 'A+' rating on Oconee County, SC's outstanding $17.2 million general obligation bonds. The Rating Outlook is revised to Negative from Stable.

The Rating Outlook revision reflects deterioration in the county's employment levels and uncertainty about funding sources for the county's sizable capital needs over the next several years. The county's unemployment rate grew sharply over the past year, to 8.3% in September 2005 from 7.0% in September 2004. The increase was accompanied by only a small increase in the labor force and was due in part to the recent massive layoff of 1,400 employees by West Point Stevens, once the county's largest employer. Reflecting the dependence on manufacturing, unemployment rates have been on an upward trend, increasing on average by 1% each year from 2000-2004. The labor force decreased by a slight 0.27% during that same time period.

The county is relying on passage of a one-cent local option sales tax (LOST) to fund a majority of its estimated $80 million in capital needs over the next 6-7 years. Voters rejected this tax in a November, 2005 election, but officials plan to hold another referendum this fall. Planned capital expenditures focus on infrastructure needs such as sewer, road, and bridge expansions and improvements. The LOST would provide for the aforementioned projects, which the county believes to be crucial in attracting the industrial and commercial development needed to expand the economy and increase the tax base. Possible alternatives to the sales tax include implementation of road maintenance fees, various facility fees, and issuance of debt.

The 'A+' rating is based on Oconee County's low debt with rapid amortization, offset by significant tax base concentration, and the predominance of manufacturing employment. Duke Energy Corp. (secured obligations rated 'A-' by Fitch) owns three generating plants in the county that account for 30% of the fiscal 2004 tax base. Duke Energy is also the largest private employer with 1,770 employees. Manufacturing accounts for about 32% of county employment, and is primarily focused on industrial machinery, equipment, instruments, and related products.

Oconee County is in the northwestern corner of South Carolina. About 60% of the 654 square-mile land area is parks and forests, and tourism is based on the county's recreational opportunities. The estimated 2004 population is 69,057, and population grew 15% in the 1990s. Residential development is taking place along the county's extensive lakefront, with much of the growth among retirees. Officials expect continued residential growth to result from expansion of the Greenville area and from faculty and staff of Clemson University, across Lake Hartwell from Oconee. Moderate assessed value (AV) growth results from solid residential increases and flat utility values, which are close to one-half of total AV.

Financial operations resulted in fund balance drawdowns in fiscal years 2001-2003 and a small increase in 2004 with a one-time transfer from the county's solid waste fund. Unreserved general fund balance as a percentage of expenditures and transfers out has declined from a high of 41.7% in fiscal 2001 to a still solid 25.1% in fiscal 2004. Officials report that results for fiscal 2005 were positive. The county stabilized the declining trend in fund balance by increasing the fiscal 2005 property tax rate for operations by three mills, furthering a goal of increasing the undesignated fund balance to an amount sufficient to cover 90 days of expenditures; at the end of fiscal 2005, the undesignated balance covered about 47 days. The county is taking further measures to increase reserves in fiscal 2006 by implementing a road maintenance fee.

Total county debt, including overlapping school district debt, is a low $1,030 per capita and 1.3% of market value. With $5.1 million in debt of the sewer system, a component unit for which the county has financial responsibility, the debt level rises slightly but remains low at $1,108 per capita and 1.4% of market value. Debt amortization is very rapid, with 52.6% retired in five years and 82.7% in 10. Capital needs are generally funded on a pay-as-you-go basis.

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