TEXT - Fitch rates Union County, NC GOs
Feb 6 - Fitch Ratings has assigned an 'AA+' rating to the following general obligation (GO) bonds and a 'AA' rating to the following limited obligation bonds (LOBs) of Union County, North Carolina (the county): --$72.6 million GO refunding bonds, series 2013A; --$96.6 million GO refunding bonds, series 2013B; --$32.7 million refunding limited obligation bonds, series 2013. The GO bonds are expected to sell on February 27th and the LOBs on March 7th via negotiation. GO bond proceeds will be used to refund various series of fixed and variable rate GO bonds for debt service savings and a reduction in interest rate exposure. LOB proceeds will be used to refund series 2003 and 2006 certificates of participation for debt service savings. In addition, Fitch affirms the following ratings: --$404.26 million outstanding GO bonds at 'AA+'; --$47.7 million outstanding COPs at 'AA'; --$27.85 million LOBs affirmed at 'AA'; The Rating Outlook is Stable. SECURITY GO bonds are general obligations secured by the full faith and credit and unlimited taxing power of the county. COPs and LOBs are secured by lease payments subject to annual appropriation by the county and by a lien on essential government assets. SENSITIVITY/RATING DRIVERS STRONG FINANCIAL PROFILE: The county continues to exhibit solid reserve levels and controlled expenditure growth despite pressures related to rapid population growth. AVERAGE OVERALL DEBT PROFILE: Overall debt levels and total carrying costs remain moderate. Risk associated with the county's historically high variable-rate exposure will be significantly reduced with the current refunding issue. FAVORABLE ECONOMIC INDICATORS: The county's economy benefits from the broad employment base of the city of Charlotte in adjacent Mecklenberg County. Wealth levels continue to exceed national averages. Unemployment is slightly above the national average. APPROPRIATION RISK: The 'AA' rating assigned to the COPs and LOBs reflects appropriation risk, as well as the level of essentiality assigned to assets securing the bonds. CREDIT PROFILE Union County is located in south-central North Carolina and is part of the rapidly growing Charlotte-Gastonia-Rock Hill MSA. Population growth has been rapid over the past decade, rising 66% to an estimated 205,463 since 2000. STRONG FISCAL MANAGEMENT MARKED BY HEALTHY RESERVE LEVELS Financial operations historically have been characterized by maintenance of healthy reserves, adherence to internal reserve policies, and a conservative approach to budget development. Fiscal 2012 general fund revenues showed strong year-over-year growth (4.3%), following stagnant cumulative growth of less than 1% between fiscal 2010 and 2011. While property tax revenue improved by a nominal 0.7% on the year, sales taxes performed strongly - increasing $2.3 million or 10% year-over-year, the first increase since fiscal 2008. Revenue gains were partially offset by 1.2% year-over-year growth in expenditures, mainly attributable to increases in public safety and debt service. As a result, the county experienced an operating surplus of $11.5 million, increasing the unrestricted fund balance to $52.75 million or a healthy 15% of spending. Also, the county's reserve required by state statute, which is primarily to offset accounts receivable, is a source of additional financial flexibility. This reserve totaled $12.9 million at fiscal year-end 2012, or an additional 6% of spending. The fiscal 2013 general fund budget of $227 million represents a 3.4% increase over the original fiscal 2012 adopted budget. The budget reduces the tax rate marginally to $.66 from $.665 per $100 of AV and appropriates $1.2 million of fund balance. Education remains the county's largest expenditure at 36% of the general fund total. The budget increases education funding for the first time since fiscal 2010, adds a modest number of general government positions to maintain services, and funds a pay increase--the first in four years. Management reports year-to-date operations reflect positive variances, and they expect essentially break-even results at year-end. This projection appears reasonable based on prior years' results and demonstrated sound management. The county's five-year financial projections show a $2.5 million shortfall for the fiscal 2014 budget, although final adoption does not occur until June 2013; the projection also indicates a $4.3 million gap for fiscal 2015. Fitch expects the county to address the projected shortfalls through its established practices of conservative budgeting and spending controls (the county typically underspends its budget by 3 - 4%). MODERATE DEBT PROFILE/VARIABLE RATE EXPOSURE SIGNIFICANTLY REDUCED Overall debt levels are moderately low at $2,429 per capita and 2.3% of market value. Debt service costs are high, consuming 22% of total spending in fiscal 2012. Amortization of outstanding principal is above average with roughly 60% of principal retired within 10 years.Fitch expects debt levels to decline modestly in the future as the county has no short-term debt plans. The county has not adopted a new capital improvement plan (CIP) since fiscal 2010. Fitch views the lack of an updated CIP (for the county and schools) with some concern, given the county's significant population growth and large infrastructure needs. The current issuance includes the refunding of the majority of the county's variable-rate debt and the termination of all swap agreements. Following the refunding, variable rate debt will account for just 3.2% of total debt, down from 26% in fiscal 2012. The termination payment of $21 million will be paid from moneys held in the general capital project fund. Funding for pension obligations does not represent a large cost pressure. The county contributes to four retirement plans including the well-funded state Local Government Employees' Retirement System (LGERS). The county's fiscal 2012 total contribution was an affordable $5.1 million or 2.2% of governmental spending. For OPEB, the county pays its obligation on a pay-go basis. For fiscal 2012 the annual contribution represented 2.3% of spending. GROWING ECONOMY Union County is a rapidly growing, primarily residential, suburb of Charlotte. The county's population, estimated at 205,463 in 2011, grew a substantial 66% since the 2000 census and is projected by the North Carolina State Demographics Unit to grow another 25% this decade. Growth management policies have somewhat moderated the pace of development, although the county remains attractive due to its proximity to Charlotte. Most of the county's largest employers and taxpayers are manufacturing companies. Corporate expansions and developments in the county have been limited in nature and focused on manufacturing and construction. The county posts the third highest level of agribusiness receipts in the state. Economic indicators are generally positive, although lingering effects of the recession remain. Labor statistics show that employment increased by 2.5% while the labor force increased by 1.3% between 2011 and 2012. As a result, unemployment declined by slightly more than 1% year-over-year to 7.8% in November 2012. Wealth indicators are above state and national averages.