TEXT-Fitch affirms Queen Anne's County, Md. GOs, outlook revised to stable

Fri Feb 22, 2013 10:50am EST

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Feb 22 - Fitch Ratings takes the following rating action on Queen Anne's
County, Maryland (the county):

--$97.5 million general obligation (GO) bonds affirmed at 'AA+'.

The Rating Outlook is revised to Stable.

SECURITY

The bonds are general obligations of the county, secured by its full faith and
credit pledge.

KEY RATING DRIVERS

IMPROVED FINANCIAL PERFORMANCE: The revision of the Outlook to Stable from
Negative reflects enhancements made during fiscal 2012, spending cuts and
conservative budgeting, allowing the county to generate an operating surplus
which significantly strengthening reserve levels. Fitch takes additional comfort
from the county's positive operating projections for fiscal 2013 as well as
substantial revenue raising capacity.

STRONG ECONOMIC CHARACTERISTICS: Queen Anne's County benefits from its location
within close proximity to both the Baltimore, MD and Washington D.C. metro
areas. Key economic and demographic factors, including employment, wealth
indicators, and educational attainment, consistently match or exceed the state
and nation.

DEBT TO REMAIN AFFORDABLE: Overall debt levels are moderately low and should
remain so given the county's limited future borrowing plans. Debt service
expenditures represent an affordable 9.6% of general fund expenditures.

RATING SENSITIVITIES

FISCAL MANAGEMENT: The rating is sensitive to management's ability to continue
to maintain stable operations with recurring budget solutions and sustain
healthy reserves and liquidity.

CREDIT PROFILE

Queen Anne's County is located on the eastern terminus of the Chesapeake Bay
Bridge, directly across the bay from Anne Arundel County. Population growth has
been strong, increasing 19% since 2000 to an estimated 48,354 as of 2011.

2012 BUDGET IMPLEMENTED REVENUE INCREASES & SPENDING CUTS

In an effort to restore structural balance and improve reserve levels, during
the fiscal year 2012 budget process the county implemented a property tax rate
increase as well as an increase in the income tax rate. The expenditure budget
included a continuation of the workforce furlough program, hiring freeze and
suspension of various employee benefit programs. Additionally, during the year
the county offered an early retirement incentive.

Fiscal year-end 2012 results reflected a second consecutive year of positive
variance in income tax revenue, the county's second largest revenue source
representing 31% of the general fund, supporting a $5.3 million operating
surplus. The unrestricted fund balance increased to $11.9 million or a healthy
10.9% of general fund spending, compared to the modest budgeted drawdown of
$566,779.

POSITIVE OPERATIONS EXPECTED TO CONTINUE IN FISCAL 2013

The fiscal 2013 budget of $107 million represents a 1.2% increase over the
fiscal 2012 budget. The budget does not include any fund balance appropriation
or revenue enhancements.

Year-to-date general fund revenues, driven by strong income tax performance, are
projected to outperforming budget and management's expectation for roughly
break-even results appear reasonable.

Fitch views the county's low comparative property tax rate as an important
measure of financial flexibility given its dominance as a source of general fund
revenues.

LIMITED LOCAL ECONOMY CLOSE TO BALTIMORE-WASHINGTON MARKET

Given the fairly limited economy, roughly 85% of the labor force commutes
outside the county, with most workers crossing the Bay Bridge to jobs in the
deep and diverse Baltimore-Washington market. The county's unemployment rate has
declined year-over-year, recorded at 5.6% as of December 2012, and has
consistently ranked below those of the region, state, and nation. Wealth levels
are above average when compared to state and national levels.

FAVORABLE DEBT PROFILE ENHANCED BY STRONG DEBT POLICIES

Debt levels are moderately low and should remain so given manageable capital
needs and above-average amortization of 65% within 10 years. The county's
capital planning process benefits from adopted debt policies limiting GO debt to
a moderate 2.5% of county taxable assessed value and $3,000 per capita. The
capital plan for fiscal years 2013-2018 totals $88.6 million, with maintenance
upgrades to emergency facilities and school renovations representing the
majority of the plan. Bond proceeds are programmed to finance about $57 million
of the program, with operating budget contributions and grants funding most of
the balance.

Other long term obligations are manageable totaling less than 5% of 2012
spending. The county contributes to the State of Maryland Employees Retirement
and Pension System and makes all annually required contributions. State pension
funding levels have deteriorated, and the state has undertaken extensive pension
and other post-employment benefit (OPEB) reforms, although annual costs are
expected to continue growing. Additionally, the county has created an OPEB trust
and expects to fully fund the OPEB ARC by 2021. The county funded 20% of the
OPEB ARC in fiscal 2012. Carrying costs for debt service, pension and OPEB
totaled a manageable 13.6% of governmental fund spending (excluding capital
funds).

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight, National Association of Realtors, Real Estate Business
Intelligence.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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