TEXT-Fitch affirms Orangeburg County, S.C. GOs at 'A'
Jan 23 - Fitch Ratings has affirmed the 'A' rating on the following Orangeburg County, South Carolina (the county) general obligation (GO) bonds: --$6.2 million GO bonds of 2008. The Rating Outlook is Stable. SECURITY The bonds are a general obligation of the county backed by its full faith and credit and unlimited taxing power. KEY RATING DRIVERS UNEVEN BUDGETARY PERFORMANCE, LOW RESERVES: General fund reserves have declined significantly in recent years and remain somewhat weak despite positive year-end results in each of the prior two fiscal years. BELOW AVERAGE ECONOMIC METRICS: The economy remains rooted in manufacturing and continues to exhibit high unemployment and low income. Business development efforts appear to be yielding some success as evidenced by good job growth over the prior two years. MANAGEABLE DEBT BURDEN: High carrying costs are offset by very rapid amortization and affordable longer term debt and pensions. CREDIT PROFILE Orangeburg County is in the Lower Savannah section of South Carolina, approximately 40 miles south of Columbia, the state capital and 75 miles northwest of Charleston. The county is home to seventeen municipalities. The county's population has declined slightly over the past decade to a present level of about 90,100. FINANCES SHOW RECENT STABILITY; KEY TO FUTURE RATING DIRECTION The county experienced deficits from fiscal 2006 - 2010 which drew down its general fund balance by a significant $6.4 million, reducing its unreserved fund balance to $1.8 million, or a low 5.4% of spending by the end of fiscal 2010. Modest operating surplus in recent years are a positive trend, but fund balance is still well below the county's target of 15%. The general fund reported a surplus after transfers of $301,258 or 0.9% of spending in fiscal 2011. Management reports a preliminary operating surplus of approximately $600,000 in fiscal 2012, and the county adopted a structurally balanced budget for fiscal 2013 that does not appropriate existing reserves. Management reports no material deviations from the budget based on year-to-date results. Property taxes comprise about 70% of general fund revenues. A statutory cap on annual levy growth generally limits management's revenue flexibility; however, the county has accumulated some additional millage capacity above the statutory formula by virtue of it not having increased taxes from fiscal 2008-2012. Taxpayer concentration is high owing to the presence of South Carolina Electric and Gas (Fitch long-term issuer default rating of 'BBB+') which accounts for nearly 12% of the tax base. Rating concerns are largely offset by the relatively stable nature of this entity. The county's ability to maintain its current state of budgetary balance while restoring reserves more closely in line with its 15% fund balance target will likely serve as the basis for any positive rating consideration. ECONOMIC CONDITIONS REMAIN STRENUOUS Per capita and median household income metrics are 25%-35% below the state and U.S. average and the individual poverty rate is 156% of the U.S. average. Market value per capita is quite low as well (just above $40,000). Unemployment within the county is consistently high relative to the state and the U.S. The monthly unemployment rate was 12.4% in October and has average almost 14.4% dating back to January 2010. While unemployment remains high the county has experienced good job growth of 2.2% over the prior 12 months and 3.4% dating back to October 2010. LARGE MANUFACTURING PRESENCE LED BY HUSQVARNA Manufacturing accounts for close to 20% of total employment in Orangeburg County compared to 12% for South Carolina and 8.9% for the U.S. The county's manufacturing base varies from lawn equipment (Husqvarna) and roller bearings (Koyo) to polymer tubing (Zeus) and bakery and grocery products (Sara Lee and Food Lion). Recent capital investments have likewise come from firms involved in a variety of manufacturing activity and are due in part to the county's successful utilization of incentive programs and its favorable proximity to interstates 26 and 95 as well as the Port of Charleston. Husqvarna's 2,300 employees account for more than 6% of the county's employment base; as such the firm plays an important role in the county's economic outlook. In 2010 Husqvarna announced a plan to invest more than $105 million in its Orangeburg County facility in two phases to be complete by 2013 and 2024. MODERATE DEBT PROFILE The county's overall debt burden remains moderate at 3.7% of market value and low at $1,550 per capita. Approximately 70% of the debt burden is driven by overlapping school district obligations. Carrying costs associated with the county's long-term debt, pension, and retiree health benefits is considered above-average by Fitch at approximately 27% of governmental fund spending. This ratio is largely driven by debt service due on sales tax bonds issued by the Orangeburg Joint Governmental Action Authority, a component unit of the county (the bonds are not rated by Fitch). The rapid seven-year amortization of these bonds, which corresponds to the county's authority to collect the voter-approved 1% capital projects sales tax pledged as security, offsets concerns about the high carrying costs. Other elements of carrying costs are affordable. Annual collections plus interest earnings narrowly cover debt service on the sales tax bonds; there is also a substantial surplus of cash in the sales tax fund (almost $50 million in fiscal 2011) limited to capital expenditure or debt repayment. VOTERS APPROVE EXTENSION OF SALES TAX FOR CAPITAL PROJECTS The county does not maintain a formal capital plan however capital needs are primarily funded by the capital projects sales tax, which is required to be passed in association with defined projects that will be eligible to be funded through its proceeds. This tax has been approved in three consecutive referenda by a very favorable margin. The most recent referendum, in November 2010, provides for the collection of the sales tax for a seven-year period commencing May 2013 and is expected to generate $84 million in revenue. MANAGEABLE PENSION LIABILITY Pension liabilities are limited to the county's participation in various multiple-employer plans administered by the state. While these plans are poorly funded the state does fund at the full actuarial requirement and the county's contributions consume an affordable portion of its budget. 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, and 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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