TEXT - Fitch affirms Rutherford County, NC bonds
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.