TEXT - Fitch rates King County, Washington GOs

Mon Jan 28, 2013 1:17pm EST

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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.
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