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Fitch Affirms Chester County, PA's GO Bonds 'AAA'; Outlook Stable.

New York: Fitch Ratings has affirmed the following ratings to the County of Chester, PA's (the county) bonds:

--Approximately $550 million outstanding unlimited tax general obligation (ULTGO) bonds at 'AAA';

--Issuer Default Rating (IDR) at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the county backed by its unlimited ad valorem tax pledge.

ANALYTICAL CONCLUSION

The 'AAA' rating reflects Fitch's expectation that the county will maintain strong financial resilience and a relatively stable local economy characterized by high wealth levels and low unemployment. Limited prospects for natural revenue growth are offset with its significant independent revenue raising ability. Financial operations are expected to remain strong given the county's solid expenditure flexibility and modest long-term liabilities.

Economic Resource Base

The county is located in southeastern Pennsylvania, 30 miles west of Philadelphia. The well-established, diversified economy includes the financial services, education, health services and agriculture sectors. Wealth levels are well above state and national levels, making Chester County the wealthiest county in the state.

KEY RATING DRIVERS

Revenue Framework: 'aa'

Fitch believes future revenue growth is likely to be below the rate of inflation based on the historical trend of slow economic growth. The county is reliant on the property tax and assessed values have demonstrated slow but stable growth over the last decade. The county's significant independent legal ability to increases taxes elevates the overall assessment.

Expenditure Framework: 'aa'

The natural rate of expenditure growth is expected to be in line with to marginally above expected revenue growth. The county has solid ability to manage expenditures and carrying costs for debt service, pension and other employee benefits are moderate as a percentage of governmental expenditures.

Long-Term Liability Burden: 'aaa'

Long-term liabilities including debt and the unfunded pension liability are low at approximately 5% of personal income. The county's retirement system is well funded and the other post-employment benefit (OPEB) liability is low.

Operating Performance: 'aaa'

Fitch believes that in a moderate economic downturn, the county would maintain superior financial resilience given its high available general fund balance and significant budgetary flexibility.

RATING SENSITIVITIES

Financial Resilience: The County's superior gap-closing capacity - including strong reserves relative to revenue volatility, ability to independently increase property tax rates and control spending - is an important rating factor. The inability to maintain ample financial resilience would result in negative rating pressure.

CREDIT PROFILE

The county has experienced modest but steady population growth given its close proximity to major employment centers including New York, Philadelphia and New Jersey. The county's 2016 population estimate of 516,312 represents an increase of 3% since the 2010 census. Fitch believes growth will remain at a slow pace. The local economy is primarily residential (71%) and includes a commercial and agricultural base. The county enjoys a diverse tax base with little concentration in any one sector or taxpayer. Taxable assessed value has remained fairly stable over the last several years and posted mild growth in fiscal 2016. The county's unemployment rate remains well below the state and national averages.

Revenue Framework

Property taxes account for over 70% of total general fund revenues. The county is expected to have minimal revenue growth based on a continuation of the limited compound annual growth rate over the past ten years through 2016.

Growth in assessed valuation has been slow but steady, reflecting the overall economic stability of the region and modest residential development including construction of mixed use (retail and residential) developments and senior housing.

The county has significant ability to increase taxes under its statutory tax limits. The property tax millage rate for debt service is unlimited and the tax rate limit for general purpose property taxes is capped at 25 mills. The current general purpose tax rate is 2.794 mills, which provides the county the ability to increase the rate by 22.21 mills or 7.9 times. The county has a 4 mill personal property tax limit but has not levied this tax since 1996.

Expenditure Framework

The majority of the county's general fund expenditures are for general governmental services which accounted for more than half of 2016 expenditures, followed by public safety which accounted for 34%.

The county has a strong record of managing the pace of expenditure growth given its conservative budgeting practices and ongoing efforts to establish greater operational efficiencies. Throughout the past several years the county has managed labor costs through attrition and controlling overtime. The county has reduced the number of employees by 10% since 2010 and plans minimal staffing increases.

Carrying costs for debt service, pension and OPEB equaled a moderate 12% of 2016 total governmental spending. Management has been successful in controlling public safety costs through court consolidations and prison energy savings initiatives. The county maintains flexibility for additional operating consolidations. Under the county's labor agreements, management has the ability to manage the size of its labor force and has required employees to share in health care costs.

Long-Term Liability Burden

The modest overall long term liability burden equals approximately 5% of personal income and the county has manageable future borrowing plans that are in line with outstanding principal amortization. The majority of the debt burden is overlapping debt of towns and school districts.

The county provides pensions through a single-employer defined benefit pension plan. The plan has a ratio of assets to net liabilities of 73% at a 5% adjusted rate of return. The total adjusted net pension liability accounts for less than 0.5% of personal income.

Other postemployment benefit (OPEB) costs are limited and the elimination of retiree health benefits beginning in July 2006 will reduce the liability over time. The county makes pay-as-you-go payments and had unfunded actuarial accrued liabilities of a negligible $3.7 million as of Dec. 31, 2016.

Operating Performance

Fitch believes that the county's operating performance would remain strong in the event of a moderate economic downturn given its high reserves, ample revenue-raising capacity and notable expenditure flexibility. County officials have consistently demonstrated proactive and effective financial stewardship by budgeting conservatively, maintaining solid expenditure controls and increasing taxes when necessary.

Financial results consistently are better than budgeted estimates, reflecting management's conservative budgeting practices. Unrestricted general fund reserves have remained above 25% of general fund expenditures since 2010 and grew to $45 million or 33% of expenditures in 2016. Property tax growth as well as expenditure savings produced positive operating results.

Consistent with the county's conservative budgeting practices, the county appropriates general fund balance in the adopted budget on an annual basis; however this is typically offset with positive operating performance that exceeds this appropriation. The 2017 budget includes an appropriation of $8.5 million but management anticipates replenishing the majority of the appropriation due to strong property tax revenues and expenditure savings. The 2018 budget is expected to be funded without a property tax rate increase and with limited expenditure growth driven by savings from efficiency initiatives including fleet management improvements.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Jan 10, 2018
Words:1151
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