TEXT - Fitch rates Union County, NC GOs

Wed Feb 6, 2013 4:58pm EST

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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.
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