TEXT - Fitch rates King County, Washington GOs
Jan 28 - Fitch Ratings assigns an 'AA+' rating to the following King County, Washington new debt issuance: --Approximately $73.9 million limited tax general obligation (LTGO) bonds series 2013. The bonds are scheduled to price on Feb. 19, 2013 via competitive sale. Proceeds will be used to retire outstanding bond anticipation notes and provide interim financing for county solid waste projects. In addition, Fitch affirms the following ratings: --$154 million outstanding unlimited tax general obligation (ULTGO) bonds at 'AAA'; --$1.6 billion outstanding LTGO bonds at 'AA+'. The Rating Outlook is Stable. SECURITY The bonds are general obligations of the county, secured by an irrevocable full faith, credit, and resources pledge to levy an ad valorem tax sufficient (together with all other legally available monies) to pay debt service. The LTGO pledge is constrained by property tax levy growth of 1% per year, plus new construction. SENSITIVITY/RATING DRIVERS RESILIENT ECONOMY: King County retains a sound economic base due to its role as a regional economic center and above-average wealth and income levels. Employment levels remain below pre-recession peaks but have seen steady improvement over the past year. Assessed values continue to face downward pressure, but recent home price increases offer signs of recovery in the local housing market. SOUND FINANCIAL POSITION: General fund balances and cash levels are healthy and increased substantially in fiscal 2011. The county's finances remained stable in 2012 and the recently adopted 2013 budget is balanced. STRONG MANAGEMENT: The county's strong management is reflected in its commitment to long-term planning, adherence to council-adopted financial management policies, and low debt burden. LIMITS ON REVENUE GROWTH: The county is property tax dependent in a state with restrictive property tax levy growth limits and recent significant taxable assessed value (TAV) declines. STRUCTURAL IMBALANCE: The county will be challenged to maintain structural balance over the longer term due to ongoing cost pressures and constraints on revenue growth. Recent efforts to address this imbalance through efficiency measures have shown positive results but could prove difficult to maintain on a permanent basis. CREDIT PROFILE DIVERSE ECONOMIC BASE; SOME RECOVERY EVIDENT King County benefits from a diverse economy and tax base that encompasses almost 29% of the state's population. The county includes the Pacific Northwest's largest city, Seattle, and serves as a regional economic center. Wealth and income levels are well above national averages, and TAV is high at $162,000 per capita. King County performed better than many regions nationally in the recent downturn, but its economy continues to face challenges. Employment levels sustained steady but modest improvements throughout 2012, yet remain below pre-recession peaks. Assessed values continue to suffer the impacts of the housing decline, although an uptick in home values has been evident in recent months. County management projects a fourth consecutive year of TAV declines in 2013 that would raise cumulative losses since 2009 to nearly 20% of assessed value. PROGRESS IN ADDRESSING STRUCTURAL IMBALANCE King County's general fund fared better during the recent downturn than economic indicators might suggest. Total revenues increased at a modest average annual rate of 0.5% between 2007 and 2011, while the county impressively held spending stable. In addition to ongoing savings from labor cost reductions achieved during this period, the county has sought to reduce costs by 3% per year on an ongoing basis through efficiency improvements. Key efficiency gains to date have included reductions in employee health insurance costs, office space consolidation, and the centralization of information technology services. Such efficiency efforts respond to legal limits on growth in property tax, the general fund's largest source of revenue, and are intended to address the structural imbalance between projected revenue and expenditure growth. The county was able to eliminate a preliminary budget gap of $24.6 million for 2013 without service reductions or fund balance use, but Fitch believes out-year gaps may prove challenging to manage. While not anticipated, a material change in the county's financial flexibility and reserves relative to historical levels could pressure the current rating and/or Outlook. STRONG RESULTS FOR 2011 General fund balances improved substantially in 2011 after a small increase in 2010 and three prior years of declines. Unrestricted fund balance (the sum of committed, assigned, and unassigned fund balance per GASB 54) reached 20% of general fund spending ($127.7 million) due to conservative budgeting, a planned increase in reserves, and reserve fund consolidation. Balance sheet liquidity is satisfactory, as the county closed fiscal 2011 with general fund cash and investments of $90.1 million, equivalent to almost two months of general fund spending and more than three times total liabilities. Management expects to report increased fund balances for the fiscal year ending Dec. 31, 2012, which Fitch considers likely based on the county's track record of conservative budgeting. LOW DEBT; MANAGEABLE PENSIONS The county's debt burden remains low with net direct and overlapping debt at 1.7% of market value. Amortization is quicker than average with 69% of net direct debt repaid in 10 years. Pension liabilities are manageable and reflect historical strong funding levels for most state-sponsored plans. Other post-employment benefit liabilities are relatively minor as most retirees must pay for the cost of their participation in the county's group insurance plan.