TEXT-Fitch rates Baltimore County, Md. GOs 'AAA', COPs 'AA+'

Wed Nov 21, 2012 1:20pm EST

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Nov 21 - Fitch Ratings has assigned the following ratings to Baltimore
County, Maryland (the county) general obligation (GO) bonds, taxable general
obligation bonds (GOs), certificates of participation (COPs) and bond
anticipation notes (BANs):

--$16.63 million metropolitan district bonds, 2012 refunding series 'AAA';
--$93.76 million consolidated public improvement bonds - 2012 refunding series
'AAA';
--$60 million metropolitan district bonds (75th Issue) 'AAA';
--$193 million consolidated public improvement bonds, 2012 series 'AAA';
--$256.4 million taxable GOs, 2012 series 'AAA';
--$10.97 million COPs (health and social services building project), refunding
series 2013 'AA+',
--$60 million metropolitan district BANs - 2013 series 'F1+'.
--$140 million consolidated public improvement BANs, 2013 series 'F1+'.

The taxable GOs, 2012 series will partially fund the unfunded present or
contingent liability of the county under the portion of the Employees'
Retirement System of Baltimore County closed to new membership effective as of
July 1, 2007, Plan A. The bonds are scheduled to sell negotiated on Nov. 27,
2012.

The consolidated public improvement and metropolitan district bonds will be used
to refund certain series of bonds and permanently finance various series of
notes. The bonds are scheduled to sell competitively on Nov. 29, 2012.

The COPs refunding series 2013 will refund the series 2001 COPs. The COPs are
scheduled to sell competitively on Jan. 15 2013.

The BANs 2013 series will provide interim funding for the county's capital
program. The notes are scheduled to sell competitively on Jan. 15 2013.

In addition, Fitch affirms the following ratings:

--$1.8 billion outstanding GO bonds at 'AAA';
--$142.53 million outstanding lease obligations at 'AA+';
--$200 million bond anticipation notes at 'F1+'.


The Rating Outlook is Stable.

SECURITY

The GO bonds and BANs are secured by the county's pledge of its full faith and
credit and its unlimited taxing power. The principal source of repayment for the
BANs will be proceeds from the sale of additional BANs or bonds. The principal
source of repayment for the metropolitan district bonds will be special
assessments and charges levied against all property in the metropolitan
district. The lease purchase bonds are secured by purchase installments made by
the county that are subject to appropriation and a security interest in
essential leased assets.

KEY RATING DRIVERS

CONSIDERABLE ECONOMIC BASE: The broad and diverse economy benefits from the
presence of federal installations, health care, financial services, and higher
education. Highly structured development efforts, focusing on growth management
and collaboration with surrounding jurisdictions, underscore excellent prospects
for continued expansion.

HISTORICALLY STRONG FISCAL MANAGEMENT: Prudent management decisions and
adherence to fiscal policies has helped maintained solid reserve levels despite
some revenue declines experienced in recent years. Prior years of robust
pay-as-you-go capital spending built into the budget were re-distributed to
offset portions of recent revenue declines. Also, reductions in workforce
through voluntary retirements, labor concessions and expenditure streamlining
reduce structural imbalances.

FAVORABLE DEBT POSITION: Debts ratios are moderate and expected to remain so as
principal amortization rates are above average.

APPROPRIATION RISK AND ASSET ESSENTIALITY: The ratings for the certificates of
participation reflect appropriation risk and the essential nature of the assets
subject to lien.

MARKET ACCESS: The 'F1+' short-term rating reflects the county's strong overall
credit characteristics and expected market access.

CREDIT PROFILE

Baltimore County, with its large population of 807,000, covers 612 square miles
and surrounds the independent city of Baltimore. The county is unique in that it
has no underlying governmental jurisdictions positioning it favorably for
attracting new business and for overall central decisionmaking.

DIVERSE AND ROBUST ECONOMY

The employment base is broad and deep, consisting of over 21,000 companies. The
largest private sector employers provide more than 65,000 jobs. Federal
installations, health care, financial services, and higher education
predominate, with skilled manufacturing and technology becoming a growing sector
and major focus of economic development. The county is home to several
government agencies including the Social Security Administration and Medicare
and Medicaid Services, which combined employ 16,000 people, but federal
employment represents only 5% of the total employment base limiting its exposure
to any potential federal downsizing.

Residential unemployment (7.2% in September 2012) compares favorably with that
of the U.S. (7.6%) although slightly exceeds the state average (6.5%). Wealth
indicators are around those of the affluent region and state, but are well above
the U.S. average.

Population growth is directed towards two areas anchored by major transportation
networks, and preliminary engineering studies have begun for construction of a
new light rail line to connect with existing regional rail lines. Fitch believes
intermediate and long-range growth prospects are strong.

FINANCES POSITIONED FOR IMPROVEMENT

Drawdowns of general fund balance from fiscal 2007 - 2009 represented the
implementation of the county's multi-year plan to reduce its reserves through
appropriation of pay-as-you-go funding to its capital budget. Revenues declined
in fiscal 2010, primarily the result of a $66 million overpayment of income
taxes from the state that occurred in fiscal 2009, which not only had to be
repaid in 2010, but resulted in an over estimate of revenues for 2010.

In response to weakened revenues, the county reduced pay-as-you go capital
funding and returned to the general fund money previously committed to the
capital and economic development funds in both fiscal years 2010 and 2011. The
county lowered pay-as-you go capital financing by $100 million and transferred
back $118 million to the general fund in fiscal 2010. It additionally released
$25 million from its health care reserves. The 2010 fiscal year still ended with
a $28.5 million reduction in total fund balance. Reserves equaled 13.6% of
revenues, or in a measure more commonly utilized by Fitch, 12.5% of spending.

Fiscal 2011 included minimal pay-as-you go capital spending, at $2.6 million,
and the return to the general fund of an additional $50 million of money
previously committed to capital funding. Budgeted income tax revenues came in
below estimates by $45 million, partially a result of taxpayer behavior due to
the state's increase in the income tax rate effective that year. Expenditures
were under budget by $28 million, but not enough to offset the reduction in
revenues. The county experienced an operating deficit of $30 million, but with
the infusion of $50 million in capital project funds returned to the general
fund, the unrestricted fund balance (the sum of the assigned, committed, and
unassigned fund balance under Governmental Accounting Standards Board
54)increased to $230.4 million (14.6% of spending).

The adopted fiscal 2012 budget appropriated $61 million in reserves to address
the weakened revenues. The county's proposal to address its structural imbalance
includes alterations in the terms of future contracts, previously implemented
pension and OPEB modifications, and departmental consolidations. Towards this
end, the county successfully implemented an early retirement program and
obtained agreements from certain unions to forgo cost-of-living increases in
fiscal years 2103 and 2014.

For fiscal 2012, the county experienced a large variance in total revenues,
primarily due to management's prudent budgeting of expected income tax revenues.
This source is projected to outperform budget by approximately $85 million (5.5%
of total budgeted general fund revenues). Management is predicting a $43.8
million operating surplus resulting in an unrestricted fund balance of $295.8
million or 18.6% of unaudited fiscal 2012 expenditures. The county has a fully
funded Revenue Stabilization Reserve Account of $84.8 million which is 5.2% of
General Fund Revenues and is included in its unaudited fiscal 2012 unassigned
fund balance. Because of the current volatility in the national economy and
potential changes in intergovernmental aid, management has raised its target
level for unassigned and assigned general fund balances during this period to 7%
of general fund revenues.

Management's fiscal projections for the next five-years demonstrate compliance
with this target and Fitch believes such projections to be reasonable based on
the county's conservative budgeting practices and current level of reserves
above its target.

CONSERVATIVE FISCAL 2013 BUDGET

The fiscal 2013 budget of $1.6 billion represents a 2.8% increase over the
adjusted fiscal 2012 budget. The county has appropriated $40.8 million of fund
balance in fiscal 2013, including $13.9 million of pay-as-you-go capital
funding. The county has not budgeted the use of excess capital funds. Additional
expenses include $15.7 million to address recently implemented state funding
requirements for teachers' pensions, somewhat offset by $5.4 million of ongoing
revenues. The county conservatively budgeted the expense but not the revenue
enhancements. The adopted budget includes a downward adjustment of income taxes
to account for an anticipated distribution adjustment. Current year income tax
revenue projections are expected to exceed budget by $10 million.

DEBT PROFILE EXPECTED TO REMAIN MODERATE

Future capital needs are substantial but manageable. Overall net tax-supported
debt ratios are a low $2,279 per capita and 2.2% of market value, and
amortization is an above-average 63% within 10 years, excluding self-supporting
metro district debt and pension obligation bonds. Debt ratios exclude
outstanding metropolitan district debt, which is paid from rates and charges
generated by the self-supporting water and sewer district, although it is
secured by the county's full faith and credit pledge.

The county's capital budget and program for fiscal years 2013-2018 is $1.5
billion, including $824 million in consolidated public improvement general
obligation bonds and $674 million in metropolitan district GO bonds. PAYGO
funding is projected to be $13.9 million over this time. In addition, the county
plans to issue $90 million for capital and equipment leases. As part of its
capital plan, the county anticipates maintaining up to 20% or $200 million in
variable rate debt through the county's CP program.

The county has traditionally funded a portion of its capital needs through the
issuance of CP which is subsequently refinanced through the issuance of
long-term debt. The county provides self-liquidity for the interest for all
outstanding CP and historically interest expense has been below budget. The
current bond issues will retire and subsequently refinance $53 million of
outstanding CP. The total CP position is $200 million, the maximum that is
supported by the current liquidity provider, Mizuho Bank. This CP position will
result in a variable rate debt position equal to 6.8% of total debt, a level
that Fitch considers appropriate for such a highly rated credit.

MANAGEABLE PENSION AND OPEB COSTS

The county is one of five local entities participating in a cost-sharing
multiple employer pension and OPEB plan. The county pays 100% of its pension
actuarially required contribution (ARC), equivalent to a low 3.7% of audited
fiscal 2011 spending. The plan is adequately funded at 70.5%, using Fitch's
standard 7% rate of return.

The county's objective for issuance of the taxable general obligation bonds is
to fund the present value of the increased closed Plan A liabilities resulting
from the county's decision to reduce the valuation rate from 7.875% to 7.25%.
The rate was lowered based on information provided by the county's pension
consultant and actuarial consultant. The contribution of $255 million in bond
proceeds to the Plan A in fiscal 2013 will reduce the county's estimated long
term annual required contributions. The funded status of the system as a whole
is projected to improve to 80.1% funded in fiscal 2014 compared to the current
estimated level of 71.4%.

The county administers an OPEB trust fund that provides post-employment benefits
for its retirees. As of June 30, 2011, the county maintained a funded ratio of
11% based on actuarial asset values of $220 million and an accrued liability of
$2 billion. Management has made a commitment to increase its annual OPEB funding
in order to meet its ARC by fiscal 2018. The county budgeted $93 million towards
OPEB in fiscal 2013, an increase of $30 million from the prior year, which
equals 53% of the projected $175 million ARC. Fitch believes this budgeted
increase this year and commitment to meet its ARC over time is a credit
positive.

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, American Community Survey,
Maryland Department of Planning.

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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