TEXT - Fitch affirms Rutherford County, NC bonds

Fri Feb 22, 2013 3:23pm EST

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Feb 22 - Fitch Ratings affirms the following Rutherford County, North
Carolina (the county) bonds:

--$4.2 million general obligation bonds (GOs) at 'AA-';

--$43.8 million certificates of participation (COPs)/limited obligation bonds 
(LOBs) at 'A+';

The Rating Outlook is Stable.

SECURITY 

The GOs bonds are backed by the county's full faith, credit, and unlimited 
taxing power. 

The COPS and LOBs are secured by payments from the county, subject to 
appropriation. 

KEY RATING DRIVERS

SOUND FINANCIAL MANAGEMENT: The county has a sound financial position evidenced 
by timely revenue and spending adjustments, and compliance with an informal 
reserve policy equal to 20% of spending. 

BELOW-AVERAGE SOCIOECONOMIC INDICATORS: The county's economy is limited and 
remains somewhat concentrated in manufacturing. County wealth levels are below 
average relative to state and national levels. Unemployment is well above the 
state and nation's averages. 

LOW DEBT BURDEN: The county's debt levels are low, and amortization of principal
is rapid. Pension and retiree health costs consume a low share of county 
resources.

APPROPRIATION LIEN ON ASSETS: The 'A+' 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 Rutherford County. 

RATING SENSITIVITIES

Fitch expects the county to retain its conservative approach to budgeting and 
maintain a solid reserve position to counterbalance the county's limited 
economy, a credit factor that Fitch believes constrains the rating to its 
current level. 

CREDIT PROFILE

Rutherford County is located in the Blue Ridge Mountains in western North 
Carolina, about 70 miles west of Charlotte. Its population has grown 7.4% from 
2000 to 2012. 

BELOW-AVERAGE SOCIOECONOMIC INDICATORS

The county continues its efforts to diversify the employment and tax base but 
the county's economy remains concentrated in manufacturing and is therefore 
somewhat vulnerable during periods of economic softening. Largest employers are 
stable with healthcare and education represented. The county continues to 
experience employment and labor force losses, as well as elevated unemployment 
rates at 13.6% as of December 2012, well above the state (9.5%) and nation's 
(7.6%) rates. Wealth indicators are well below the state (70%) and the national 
(80%) averages. 

TAX COLLECTIONS REMAIN BELOW AVERAGE

With the softening of the national housing market in the last recession, several
large real estate projects encountered difficulty, leading to one bankruptcy 
filing and non-payment of property taxes by several developers in 2011. These 
delinquencies have contributed to the nearly 3% decline in the county's current 
property tax collection rate since fiscal 2008 to a below-average 93.3%. The 
delinquent property taxes have not had an adverse impact on the county's 
financial position given the county's conservative budgeting practices. The 
county reports that collections have improved to the 96% level. 

SOUND FINANCIAL MANAGEMENT

The county's finances are well managed and remain sound. The county realized a 
$1.9 million surplus in fiscal 2011 after transfers (3.7% of fiscal 2011 
spending), which increased the unrestricted general fund balance (the sum of 
committed, assigned, and unassigned per GASB 54) to $14.5 million or a strong 
28.4% of total spending. Results remained in compliance with the county's 
unofficial policy of maintaining reserves at 20% of spending. 

Fiscal 2012 results posted a small surplus after transfers of $167,000. The 
county's fiscal 2012 unrestricted general fund balance totaled $13.6 million, 
equal to a sound 27.1% of spending. Positive variances were attributed to higher
than budgeted property taxes, as well as below-budget expenditures which 
contributed to better than expected operations. Property taxes made up a high 
62% of fiscal 2012 revenues. 

The adopted fiscal 2013 budget appropriates roughly $1 million of general fund 
balance (less than 2% of budgeted general fund spending). The budget also 
increased the tax rate by 14.5% to a revenue neutral rate following a 12% 
decline in taxable assessed value (TAV) following the last revaluation. Overall,
revenue growth has outpaced expenditures over the last few years. County 
management expects that reserves will remain in compliance with current policy. 

LOW DEBT; MANAGEABLE PENSIONS 

The county's overall debt levels are very low at roughly $722 per capita and 
0.9% of market value. Amortization is above average at 84% within 10 years. The 
county has no future debt plans. 

Pension and other post-employment benefits (OPEB) benefits continue to be well 
managed. The county contributes to three retirement plans including the Local 
Government Employees' Retirement System (LGERS). The county's fiscal 2012 
carrying costs for debt service and pensions reflect a high 23.6% of 
governmental (net capital) fund spending. 

For OPEB, the county pays its obligation on a pay-go basis. For fiscal 2012 the 
annual contribution represented 1.4% of spending. 

INCENTIVE TO APPROPRIATE

The COPs and LOBs reflect a proportionate and undivided interest in rights to 
receive certain payments pursuant to an Installment Financing Contract between 
the county and the Rutherford County Public Facilities Company. The county has 
executed and delivered a deed of trust, granting funds appropriated for payment 
by the county of principal and interest on the associated bonds and a lien on 
the mortgaged property subject to permitted encumbrances. Mortgaged property 
conveyed under the deed of trust includes four schools, whose essentiality 
provides sufficient incentive to appropriate.
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