TEXT - Fitch affirms Summit County, Ohio ratings
Dec 10 - Fitch Ratings affirms the following ratings on Summit County, OH (the county): --Implied unlimited tax general obligation (ULTGO) rating to the county at `AAA'. In addition, Fitch affirms the following limited tax GO (LTGO) bonds at 'AA+': --$1.2 million various purpose LTGO bonds, series 1999; --$3.4 million various purpose LTGO bonds, series 2002; --$25.5 million various purpose LTGO refunding bonds, series 2002R; --$16.2 million various purpose LTGO bonds, series 2003; --$27 million various purpose LTGO refunding bonds, series 2004A. The Rating Outlook is Stable. SECURITY: The LTGO bonds are secured by the county's full faith and credit and its ad valorem tax, subject to the 10-mill limitation. KEY RATING DRIVERS: BUDGETARY BALANCE MAINTAINS STRONG RESERVES: Over the past four years the county has successfully addressed spending pressures amidst a volatile revenue environment through recurring and mid-year cuts, which has resulted in the maintenance of strong reserves despite several years of planned drawdowns. LIMITED REVENUE-RAISING FLEXIBILITY: Strong and conservative financial management offsets continued dependence on economically sensitive sales tax revenues and somewhat limited revenue-raising flexibility. DIVERSE ECONOMIC BASE: The county benefits from growing information, business services, finance, and health and higher education sectors representing a continued diversification away from the area's historically manufacturing-based economy. MODERATE DEBT PROFILE: The county's debt and capital needs remain manageable with above-average amortization. County contributions to state administered plans for pensions and post-employment benefits attributable to the general fund are moderate at 10% of budget. STRONG POLICIES AND PROCEDURES: Credit quality is strengthened by formal financial policies and procedures including timely monitoring of budgetary performance and minimum reserve levels. CREDIT SUMMARY: The county is located in northeastern Ohio and includes the city of Akron (LTGO bonds rated 'AA-'; Stable Outlook by Fitch). The county's population has been stable over the past decade at 541,626 in 2011. STABLE AND DIVERSE TAX BASE: The local economy is diverse with major employers in healthcare, government, and the polymer industries.. While major tire manufacturing operations have mostly moved out, the county benefits from the growing presence of polymer research and science. The county is also home to a number of corporate headquarters including The Goodyear Tire and Rubber Co. (senior unsecured rating B+; Stable Outlook), Bridgestone Americas Tire Operations, and FirstEnergy Corp. (senior unsecured rating 'BBB'; Negative Outlook). Tax-base growth has slowed over the past four years in part due to the phase out of tangible personal property values and a real property valuation decline of 9% in 2012 following a triennial revaluation. Fitch expects the county tax base to remain stable given 2012 increases in building permit and fee revenues. The Goodyear headquarters project is underway as is a large multi-purpose development project which includes a racino, residential housing and commercial space which is expected to add new taxable value and significant new jobs. The county's employment indicators are improved over a year ago, when the unemployment rate was above state and national averages. County unemployment rates are down to 5.9% in October 2012; below both state (6.3%) and national (7.8%) averages. Income and wealth indicators are average. STABLE, STRONG FINANCIAL RESERVES The county's financial profile has stabilized and remains strong after multiple years of planned reserve draw-downs. Following fund balance drawdowns totaling $30 million between fiscal 2007 and 2009, fiscal years ending Dec. 31, 2010 and 2011 resulted in total operating surpluses after transfers of just under $5 million, which increased the general fund unrestricted fund balance to a strong $49.5 million or 44% of budget. Over the past four years, management reduced expenditures through hiring and wage freezes, retirement incentives and furloughs, and experienced improved sales and property tax revenues. Fiscal 2012 general fund unaudited performance is forecasted to be in balance given improved sales tax revenues and managed expenditures and result in a modest reserve draw. The county's multi-year projections have adequately managed reductions in state funding through various expenditure reductions and conservatively forecasted overall revenues. Fiscal 2013 budget is expected to continue this trend and maintain revenue and expenditure balance. Fitch believes the county's reserve levels will remain adequate for the rating category. The county's formal fund balance policy of 17.5% of general fund spending (cash basis) as well as the county's higher informal reserve practice are credit positives. MIXED DEBT PROFILE County debt ratios remain low. Overall net debt equals $1,121 per capita or 1.7% of taxable market value. Future capital needs are manageable. In 2012 the Development Finance Authority of Summit County issued debt secured by county non-tax revenues for the county's $15.8 million share of the $223 million Goodyear Riverwalk Project. Additional county debt issuances are limited and may include present-value refunding opportunities. Debt service costs for 2011 were a low 8% of budget. The county provides pension benefits through the state administered plan and funds 100% of its required contribution, notwithstanding a year-end 2011 accounting/payment lag. Pension contributions for 2011, adjusted for the payroll lag, were approximately $25 million or a high 20% of general fund budget. Approximately 66% of pension costs are paid by non-general funds. The 2011 Fitch-adjusted funding ratio for the state pension plan was an adequate 71%. Pension reforms were passed in 2012 but are not likely to change the county's annual required pension costs. Other post-employment benefit (OPEB) costs are also administered by the state and charged to the county on a pay-go basis. The annual required payment to the state OPEB plan approximates a low 23% of the actuarial required contribution. County costs and payments were $8.5 million in fiscal 2011. Total carrying costs for pensions, OPEB and debt service are high at 35% of general fund expenditures and more moderate at 10% of total governmental expenditures, as 66% of pension expenses are outside the general fund. Fitch expects the county to continue successfully managing these carrying costs through budgetary balance and maintenance of high reserves.