TEXT-Fitch rates Loudoun County, Va. GOs 'AAA'
July 3 - Fitch Ratings assigns an 'AAA' rating to the following Loudoun County, Virginia (the county) general obligation (GO) bonds: --$70.6 million GO public improvement bonds, series 2012A. Bond proceeds will be used to finance the design, acquisition, construction, renovation and equipping of public facilities in the county and the acquisition and equipping of capital apparatus. The bonds will be sold via competitive sale on July 17th. In addition, Fitch affirms the following ratings: --$780.7 million of outstanding GO bonds at 'AAA'; --$56.2 million of outstanding lease revenue bonds issued by the Industrial Development Authority of Loudon County, VA, at 'AA+'. The Rating Outlook is Stable. SECURITY The general obligation bonds are a general obligation of Loudoun County for the payment of which the full faith and credit and taxing power of the county will be irrevocably pledged. The lease revenue bonds are limited obligations of the Industrial Development Authority of Loudoun County, VA (the authority) and are payable from lease rental payments from Loudoun County to the trustee. Payments are subject to annual appropriation by the county board. KEY RATING DRIVERS ROBUST ECONOMY: The county's strong and diverse economic base benefits from its location near Washington, D.C., with high wealth levels, a highly educated labor pool and low unemployment. Following declines in assessed value in the previous two years, slight increases occurred in 2011 and 2012. MODERATE DEBT LEVELS: The county continues to adhere to good debt management guidelines, which have allowed overall debt levels to remain moderate. Future needs according to the capital improvement plan are affordable and should not significantly impact debt ratios. Debt amortization is above average. SOUND FINANCIAL POSITION: Reserve levels and financial flexibility remain sound supported by prudent fiscal policies and planning. APPROPRIATION DEBT: The rating on the lease revenue bonds reflects the general credit characteristics of the county and incorporates risk to annual appropriation by the county board of supervisors to make rental payments equal to debt service. Leased assets are essential and are subject to seizure should the county default on its debt service obligation. CREDIT PROFILE DYNAMIC LOCAL ECONOMY Located west of Washington, D.C., the county is among the fastest growing in the country. Population nearly doubled during the last decade and is expected to continue growing as development related to Dulles International Airport and the capital attract jobs to the county. While the county maintains significant agricultural activity and open land in its western portion, the eastern portion has become increasingly developed. An established business base of federal contractors and high-tech companies leverage Loudoun's highly educated labor pool, technology infrastructure, and an extensive transportation network anchored by Dulles International Airport. The county's wealth indicators are well above state and national averages, and unemployment remained low at 3.8% as of April 2012. Loudoun's median household income is more than double the national average and 88% higher than the state average. The Metropolitan Washington Airports Authority (revenue bonds rated 'AA-' with a Stable Outlook by Fitch) is in the process of completing phase I of its metrorail extension project. Phase II of the project would expand the metrorail to Dulles International Airport with three stops in eastern Loudoun. Funding for phase II includes $315 million in county contributions that have been incorporated in the county's capital improvement plan (CIP). Fitch believes that the phase II expansion will positively impact the county's dynamic underlying economy. STRONG FISCAL MANAGEMENT MARKED BY HEALTHY RESERVE LEVELS County finances are well-managed, adhering to long-standing policy guidelines, and include detailed planning for capital and operating needs. Fiscal 2011 concluded with a $9.17 million net surplus in the general fund and an unrestricted fund balance totaling $196.2 million (the sum of assigned, unassigned and committed fund balance under GASB 54) or 18.1% of operating expenditures and transfers out. The committed portion of the unrestricted fund balance includes a fiscal reserve equal to 10% of general fund operating revenue or $106.5 million. The fiscal reserve is designed as a source of funding during major economic, natural, or national emergencies and not as a source for funding recurring expenditures. The fiscal reserve may be used in certain circumstances to offset revenue variances, though this has not been done to date. The county was able to generate positive operating results, mainly due to favorable variances in property taxes receipts due to higher revaluation figures, lower than anticipated appeals, increasing vehicle values, and expenditures savings resulting from personnel vacancies and cost reductions. Property tax revenues are the county's largest revenue source at 75% of fiscal 2011 revenues. The real property tax rate for fiscal 2013 was set at $1.235 per $100 assessed value (AV), which represents a five-cent decrease. There are no statutory or charter caps or restrictions on tax levy or tax rate growth. FISCAL YEAR-END 2012 YEAR-TO-DATE PERFORMANCE The fiscal 2012 budget included a $13.5 million general fund balance appropriation. However, the appropriated balance will not be fully utilized as local tax revenues are projected to exceed budget, non-tax funding revenues are expected to meet budget, and during the year the county expects to realize expenditure savings. County officials anticipate generating a surplus at year-end. FISCAL 2013 BUDGET The fiscal 2013 adopted budget includes a five-cent reduction of the property tax rate and a higher $24.4 million general fund balance appropriation. The increase in the appropriation amount is due to a one-time transfer of $10 million to the schools that was set aside in fiscal 2010 in a reserve account to address the future Virginia Retirement System rate changes which are now being implemented. The remainder of the appropriation offsets the impact of the tax rate decrease and funds capital projects and asset replacement. Given the county's historical financial performance, Fitch expects management to continue to maintain healthy reserve levels and record positive operating performance. AFFORDABLE DEBT PROFILE The overall debt burden is moderate, with debt per capita at $3,924 and debt as a percent of market value at 2%. Pressure on the county's debt profile from the sizable $1.4 billion CIP is minimized to a degree by the wealth of the county's tax base and the county's debt affordability guidelines. The guidelines restrict debt service to a manageable 10% of spending while ensuring rapid amortization of outstanding principal, currently at 75% within 10 years. The bulk of capital needs are to alleviate growth pressures within the county's well-regarded public school system. Projected debt financing totals are over $1.19 billion through fiscal 2018, though debt ratios are expected to remain moderate and under the 3% fiscal policy target. Funding for the county's portion of the Metrorail project is conservatively budgeted at $155 million in the CIP, exclusive of a $160 million prior allocation. APPROPRIATION DEBT Legal provisions are solid. The bonds, issued by the Industrial Development Authority of Loudoun County, are secured by lease payments received by the trustee (as assignee of the authority) from the county, in amounts equal to debt service. Lease payments are subject to annual appropriation. In the event of non-appropriation, the trustee can take possession of the leased property and the county would be unable to use it for its essential government purposes. LOW OTHER LONG-TERM LIABILITIES Pension and other post-employment benefit (OPEB) contributions do not stress financial operations. County employees participate in the state-administered Virginia Retirement System, and the county makes annual payments as determined by the state that equal its annual required contribution, which represented a modest 2% of total spending in fiscal 2011. The county's funded ratio as of fiscal 2011 was strong at 80%. The county also administers a defined benefit plan for volunteer fire and rescue personnel. The Loudoun County Board of Supervisors maintains the authority to establish and amend the benefit provisions of the plan. The 2011 contribution accounted for just 0.07% of spending and after adjusting the internal rate of return from 5.5% to 7% the plan was funded at 105% in 2011. OPEB is currently funded on a pay-go basis and represented just 3% of spending in fiscal 2011. Pension and OPEB costs are expected to remain affordable. 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, Metropolitan Council of Governments and Virginia Employment Commission. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 15, 2011); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria
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