TEXT - Fitch affirms Pitt County, NC ratings
Jan 31 - Fitch Ratings takes the following rating action on Pitt County, North Carolina (the county): --$57.45 million limited obligation bonds (LOBs) affirmed at 'AA'; --$98.86 million, certificates of participation (COPs) affirmed at 'AA'; --Implied general obligation (GO) affirmed at 'AA+'. The Rating Outlook remains Negative. SECURITY The COPs and LOBs are secured by payments subject to appropriation and a deed of trust provides security interest in essential government assets. SENSITIVITY/RATING DRIVERS IMPROVED FISCAL MANAGEMENT: The county achieved positive operating margins for fiscal 2012 and favorable results projected for fiscal 2013 following three years of general fund draws on reserves. Reserves remain healthy but are moderately below the county's goal. REGIONAL HUB: Pitt County serves as the main economic center for northeastern North Carolina. Wealth indicators are below state and national averages, which is somewhat skewed by a large student population. Unemployment is on par with the state average and above the national average. LOW DEBT INDICATORS: Overall debt levels are low at 1.7% of taxable assessed value and $1,109 per capita. The debt service burden on the general fund is low and, given the absence of additional debt plans, should remain affordable. Pension and retiree health costs consume a low share of county resources. APPROPRIATION LIEN ON ASSETS: The 'AA' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments to be made by the county, the deed of trust for the essential leased assets, and the general creditworthiness of Pitt County. WHAT COULD TRIGGER A RATING ACTION FISCAL IMBALANCE: Existing reserves provide a healthy financial cushion, but inability to maintain fiscal balance could lead to rating pressure. CREDIT PROFILE Located 90 miles from Raleigh, Pitt County is a rapidly growing retail, commercial, healthcare, and education center for northeastern North Carolina. As one of the fastest growing centers in the state, the population increased by 25.7% between 2000 and 2010. Population is expected to further increase by 26.6% by 2020. The county attributes population growth to affordable land and a good transportation system in the southern part of the county and new schools. POSITIVE OPERATING RESULTS AFTER SEVERAL YEARS OF RESERVE DECLINES TO SUPPORT OPERATIONS The county recorded operating deficits annually between fiscal 2008 and 2011 to offset weakened revenues and maintain service levels. Fiscal 2011 ended with an unrestricted fund balance equal to $15.6 million or a still healthy 11.7% of spending. However, this is below the county goal of 18%-20% of expenditures. The county's reserve by state statute, which is primarily to offset accounts receivable, is a source of additional financial flexibility and somewhat offsets Fitch's concerns regarding the lower reserves. This reserve totaled $5.93 million at fiscal year-end 2011, or an additional 4.5% of spending. Conservative budgeting, aggressive revenue collections and continued spending cuts allowed the county to realize an operating surplus at year-end 2012 of $2.3 million or 1.8% of general fund spending and transfers out. The unrestricted fund balance increased to $17.1 million or 13.1% of spending. Including the reserve by state statute of $6.9 million the fund balance increased to $23.9 million or 18% of spending. The adopted fiscal 2013 budget includes a $0.15 per $100 of assessed value tax rate increase to the revenue neutral rate of $0.68 per $100 of assessed value (AV), the first increase since 2008. The budget also includes a lower $2 million fund balance appropriation down from $5.36 million in fiscal 2011. Management reports that all departments are under a hiring freeze and expenditures are being reduced to eliminate the use of appropriated fund balance. Management is anticipating break-even operating results at year-end and maintenance of general fund balance at current levels. PROPERTY TAX LARGEST SOURCE OF REVENUE Property tax revenues are the county's largest revenue source at 59%. Following a 5.3% cumulative decline in taxable assessed value between 2011 and 2013, the county is projecting a 0.5% increase in fiscal 2013. The county's rate is average, compared to similarly sized neighboring communities, at $0.68 and below the statutory cap of $1.50 per $100 of AV. Total tax collections have improved due to increased staffing but still remain weak at 98%. REGIONAL ECONOMY The employment base is diversified with services, healthcare, wholesale/retail trade and education each accounting for at least 15% of total employment. Labor statistics show that employment increased by 2% while the labor force increased by 0.8% between 2011 and 2012. As a result, the unemployment rate declined to 9.1% as of November 2012 and continues to mirror the state's average but remains well above the national average. Major employers include: Vidant Medical Center (6,486 employees), East Carolina University (5,455 employees), DSM (1,350 employees) and NACCO (1,000 employees). Several of the county's largest employers continue to expand their operations with additional investments. FAVORABLE DEBT PROFILE Debt levels are modest at 1.7% on an overall basis and $1,109 per capita. Debt service represents an average 10.4% of total governmental spending. The county does not have any long-term debt plans. Pay-go spending is projected to range from $1 million to $2 million annually. The county relies heavily on COPs/LOBs as there is no GO debt outstanding. The county has no exposure to variable rate debt. OTHER LONG-TERM LIABILITIES ARE EXPECTED TO REMAIN AFFORABLE Pension and other post-employment benefits (OPEB) benefits continue to be well managed. The county contributes to four retirement plans including the Local Government Employees' Retirement System (LGERS). The county's fiscal 2012 total contribution was an affordable $7.57 million or 4.2% of governmental spending. For OPEB, the county pays its obligation on a pay-go basis. For fiscal 2012 the annual contribution represented less than 1% of spending.
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