Fitch Rates Orange County, NC's $13.8MM GOs 'AAA'; Outlook Stable.
--$13.7 million general obligation (GO) refunding bonds, series 2012.
The bonds are scheduled to sell on Dec. 19th via competitive sale. Proceeds will be used to redeem all or a portion of the county's GO public improvement bonds series 2004A, 2004B and 2005A for debt service savings.
In addition, Fitch affirms the following ratings:
--$95.52 million general obligation (GO) bonds at 'AAA';
--$15.45 million certificates of participation (COPs) (Orange County improvement projects), series 2006A at 'AA+'.
Orange County Public Facilities Company:
--$92.329 million in outstanding limited obligation bonds (LOBs) at 'AA+'.
The Rating Outlook is Stable.
The county's GO bonds are secured by the full faith, credit and unlimited taxing power of the county.
The LOBs and the COPs represent proportionate and undivided interests in installment payments to be paid by the county to the issuer pursuant to a financing contract, subject to annual appropriation. As additional security, debt holders' interests in essential government properties are secured by deeds of trust.
KEY RATING DRIVERS
SOUND RESERVE AND BUDGETARY FLEXIBILITY: Ample reserves attest to conservative budget assumptions, regular performance monitoring that generates results that outperform budgeted expectations, and adherence to prudent fund balance policies.
ROBUST ECONOMY: The economy benefits from an extensive government, university and healthcare presence and proximity to the Research Triangle Park.
POSITIVE SOCIO-ECONOMIC INDICATORS: Above average wealth levels and historically low unemployment demonstrate the desirability of the highly educated labor pool.
MODEST DEBT BURDEN: Overall debt levels are expected to remain low, given the rapid pace of outstanding principal amortization and limited future capital needs and issuance plans.
APPROPRIATION LIEN ON ESSENTIAL ASSETS: The rating on the LOBs and COPs reflects the appropriation risk inherent in the installment payments to be made by the county to the trustee, the essential nature of the respective leased assets, and the general creditworthiness of Orange County.
ECONOMY ANCHORED IN BIOTECHNOLOGY AND EDUCATION
Orange County's economic profile remains very strong with access to extensive employment opportunities and proximity to major interstate highway systems and Raleigh Durham International Airport. The county, with a population of approximately 135,755, is located in the north-central portion of the state.
Its largest town, Chapel Hill, is home to UNC-Chapel Hill, the flagship of the state's university system (enrollment of approximately 30,000), and UNC Hospitals. Together the university and hospital are the county's top employers with approximately 20,000 employees. The UNC Health Care System has broken ground on a new $200 million medical campus which is expected to be completed by 2015. The university has implemented a 20 year master plan to develop a Carolina North 250 acre campus creating approximately new 1,100 jobs, with an estimated initial investment of $70 million.
Chapel Hill also forms the western edge of the Research Triangle Park (RTP); the cities of Durham (in Durham County) and Raleigh (in Wake County) form the other two points. The RTP, the largest research park in the nation, is home to more than 170 companies including prominent biotechnology and health science companies. Companies within the RTP employ over 42,000 full-time workers and report annual payrolls in excess of $2.7 billion. Unemployment has historically trended below state and national averages, as evidenced by the September 2012 rate of 5.7%. Wealth indicators are above the state and national average.
HEALTHY FINANCIAL PERFORMANCE
Operating margins have generally been positive, resulting in healthy reserves. The county concluded fiscal 2011 with a $5.8 million surplus (3.3% of spending), in large part due to conservative budgeting. Unrestricted reserves (the sum of committed, assigned, and unassigned per GASB54) equaled a healthy 16.4% of spending. Inclusive of a state mandated reservation for receivables, which Fitch regards as available for operations if necessary, reserves equaled 21.1% of spending.
Audited fiscal 2012 results are in line with the county's expectations and reflect a sizable $10.57 million net operating surplus or 6% of spending. The surplus is attributable to a 1.3% increase in the tax base, a notable 16% uptick in sales tax revenue year-over-year due to the one-quarter cent sales tax increase, as well as under spending the budget by approximately 3%. The unrestricted general fund balance is $38.5 million or an ample 21.9% of expenditures and transfers out, well above the county's 17% reserve policy. Available fund balance increases to 27% inclusive of a state mandated reservation for receivables.
CONSERVATIVE FISCAL 2013 BUDGET
The revenue budget reflects a 1% increase and does not include estimated additional revenues generated from the one-quarter cent sales tax increase. The budget keeps the tax rate unchanged and appropriates a modest $2.18 million of fund balance. Additional flexibility is built in with overall conservative assumptions as the county historically spends between 95 and 97% of budgeted appropriations.
A recent budget amendment allows for the appropriation of unassigned fund balance above the 17% policy. The amendment appropriates $3 million to establish an OPEB trust. Fitch views the use of fund balance for one-time costs as appropriate and expects reserve levels to remain healthy given historical financial performance.
The county's tax rate of $0.858 per $100 AV is high on both regional and state bases. Fitch notes that high tax rates could pose a credit risk, although there are no indications that they have hampered development. Residents have recently evidenced some willingness to assume higher taxes, as evidenced by the 2011 referendum that imposed an additional one-quarter cent sales tax, to be split between economic development and school needs.
WELL-MANAGED LONG-TERM OBLIGATIONS
Overall debt levels are moderately low at $2,042 on a per capita basis and low at 1.5% of market value. Debt service requirements in fiscal 2012 equaled an average 15% of total spending at $26.46 million, which is within the county's 15% target. Fitch views the debt service burden as elevated but offset by the rapid amortization rate with 79% of principal retired within 10 years. The county does not have any exposure to variable rate debt, derivatives, or short-term debt.
The fiscal 2013 - 2017 capital improvement plan (CIP) totals an affordable $151.4 million. The CIP calls for the issuance of $114.6 million of tax-supported debt and $23.9 million of pay-as-you-go financing. Pension and OPEB contributions together total a modest 2.8%% of spending and do not pressure the credit.
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.
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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