TEXT - Fitch affirms Pitt County, NC ratings

Thu Jan 31, 2013 4:11pm EST

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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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