Fitch Rates Forsyth County, NC $57.3MM GOs 'AAA'; Outlook Stable.
--$13.8 million GO public improvement bonds, series 2013;
--$5 million GO educational facilities bonds, series 2013;
--$38.5 million GO refunding bonds, series 2013.
The GO public improvement and educational facilities bonds are expected to sell on December 11th via competition. Bond proceeds will finance various capital projects. The GO refunding bonds are expected to sell on December 13th via negotiation. Bond proceeds will refinance four outstanding series of GO bonds.
In addition, Fitch affirms the following ratings:
--$499.6 million general obligation (GO) bonds at 'AAA';
--$59.6 million certificates of participation (COPs) at 'AA+';
--$30.7 million LOBs at 'AA+'
The Rating Outlook is Stable.
The GO bonds are secured by a pledge of the full faith and credit and taxing power of the county. The certificates of participation (COPs) and limited obligation bonds (LOBs) are secured by lease payments equal to debt service, subject to annual appropriation by the county. As additional security for the COPs and LOBs, the county has granted a lien on essential government assets.
KEY RATING DRIVERS
AMPLE FINANCIAL FLEXIBILITY: Strong financial management and planning coupled with adherence to conservative reserve policies underscore healthy reserve levels and high liquidity.
DIVERSIFYING ECONOMIC BASE: Notable growth in technology, healthcare, and education is supplanting the traditional manufacturing base. Socio-economic metrics are around average.
GOOD TAX BASE PROSPECTS: The county's tax base has proven resilient throughout the recession. Fitch believes that the county's attractive economic base supports solid long-term tax base growth.
MANAGEABLE DEBT BURDEN: Debt levels are moderate, and long-term obligations do not pressure the credit. Above-average debt service costs have not hindered the county's financial flexibility and are mitigated by the debt service leveling plan.
APPROPRIATION RISK AND LIEN ON ASSETS: The 'AA+' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments, the essential nature of the respective leased assets, and the general creditworthiness of the county.
MEDICAL AND BIOTECHNOLOGY SECTOR ADD DIVERSITY TO ECONOMY
Located in the Piedmont region in central North Carolina, Forsyth County is one of the state's major commercial and industrial centers. A diverse economy underpinned by a significant medical and biotechnology presence has superseded the economy's historical concentration in manufacturing, textiles, and tobacco. The county has leveraged two major medical facilities (Wake Forest University Baptist Medical Center, employing approximately 11,800, and Novant Health, which employs 8,100 at three area hospitals), as well as a number of local universities to create the Piedmont Triad Research Park.
The county's 2011 population of 354,952 represented a 16% increase since the 2000 census. Growth out-paced national trends although was below that of the state. To date, the population increases have not placed undue pressure on the county's capital needs.
Unemployment remains above the national average, in contrast to the low rates prior to the recession. The September 2012 8.7% rate has shown a below-average decline over the past year, as employment gains were nearly matched by labor force increases. Education and health services represents a high 21.4% of the Metropolitan Statistical Area's (MSA) employment, about 50% more than state and national metrics. Income levels are slightly above the state's but below the national averages. Fitch notes positively that the county's cost of living is below national averages.
AMPLE FINANCIAL FLEXIBILITY
Effective financial management and planning consistently yields ample reserves and financial flexibility. General fund results since at least fiscal 2007 have produced reserve levels above the county's prudent policy of 16% of the subsequent year's expenditures. Liquidity levels are consistently high.
Tax-base growth has been good. Annual growth since fiscal 2007 has averaged 2.8%, with a negligible decline in only one year. The county expects a manageable tax base decline in the 2013 revaluation but has indicated a willingness to raise the tax rate to a revenue neutral or slightly less than revenue neutral rate.
The county concluded fiscal 2012 with a $1.9 million net surplus (after transfers) in the general fund, equal to 0.5% of spending. The county's assigned and unassigned fund balance exceeded its reserve policy level of 16% of budgeted expenditures. Fitch more commonly measures reserves as the unrestricted fund balance, the sum of committed, assigned, and unassigned balance per GASB54. By that metric, unrestricted reserves equaled $120.2 million or a high 31.7% of spending. The county's reserve for state statue, which is primarily to offset accounts receivable, is a source of further flexibility, equal to $26.9 million or an additional 7.1% of spending.
RESERVE LEVELS EXPECTED TO REMAIN HEALTHY
The fiscal 2013 budget appropriates $15.1 million of fund balance, which is on par with the fiscal 2012 budget appropriation of $16 million. Fitch notes positively that the county routinely does not utilize the total amount of appropriated fund balance and in fact, has added to fund balance annually since at least fiscal 2007. The budget does not include one-time sources, and Fitch considers revenue assumptions conservative as they assume modest to negative growth relative to fiscal 2012 actual results.
FAVORABLE DEBT BURDEN
Debt levels are expected to remain moderate and are supported by continued population and assessed valuation growth. Overall debt equals 2.6% of market value and $2,470 per capita, and amortization is above average at 61.9% of principal retired within 10 years. Variable rate debt, which is unhedged, totals 9.5% of outstanding par, a level that Fitch believes is prudent for the rating category.
The $455 million fiscal 2013 - 2022 capital improvement plan is partly funded by $222 million of long-term debt issuances. Major projects include the schools ($182 million) and the court system ($92 million). Future debt plans include issuing about $12 million - $15 million every other year for routine school and community college maintenance.
MANAGEMENT OF ABOVE-AVERAGE DEBT SERVICE COSTS
Fiscal 2012 debt service costs equaled an above-average 16.4% of expenditures. The county's recently instituted policy limits total annual debt service, less certain revenues restricted to debt service, to 15% of the budget. Fitch views the policy as somewhat liberal, but to date, the above-average debt service costs have not pressured county finances. The county's prudent debt service leveling plan somewhat offsets the high debt service costs, which includes the banking of tax receipts in advance of debt service payment and the use of lottery proceeds.
WELL-MANAGED LONG-TERM LIABILITIES
Post-employment long-term obligations do not pressure the credit. The majority of county employees participate in the well-funded North Carolina Local Government Employees' Retirement System (LGERS), a cost-sharing multiple-employer plan. Fitch notes positively that the county's contributions for pension and other post-employment benefits for fiscal 2012 equaled a minimal 1.7% of spending.
LEASE REVENUE BONDS
Debt service payments for the LOBs and COPS are subject to annual appropriation. As security for both bonds, the county delivers a deed of trust granting a lien on essential government property. Fitch believes the property's essentiality provides sufficient incentive to appropriate. Were a default to occur, the county would forfeit use of the leased property.
The county anticipates an additional $20 million LOB issuance will be necessary to complete the county's public safety facilities project, although a declining jail population might allow the county to postpone that issuance.
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, National Association of Realtors, and the Underwriter.
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
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|Date:||Nov 30, 2012|
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