News Column

Fitch Affirms Spartanburg County, SC's $13MM GOs 'AA'; Outlook Stable

January 29, 2014

NEW YORK --(BUSINESS WIRE)-- Fitch Ratings has affirmed the following rating for Spartanburg County, South Carolina (the county): -- $13.4 million outstanding general obligation (GO) bonds, series 2007, 2005, and 2003 at 'AA'. The Rating Outlook is Stable. SECURITY The bonds are general obligations of the county to which the county's full faith and credit and unlimited taxing power are irrevocably pledged. KEY RATING DRIVERS STABILIZED FINANCIAL POSITION: The county maintained its recently rebuilt fund balance through stable operations in fiscal years 2012 and 2013. Reserve levels are sound. AFFORDABLE DEBT AND LONG TERM LIABILITIES: Debt levels and carrying costs remain low and are supported by rapid amortization and modest future debt plans. Pension and other post-employment benefit (OPEB) contributions do not pressure county finances. CONCENTRATED ECONOMY: BMW's manufacturing plant lends a high degree of economic concentration to the auto industry. However, private investment continues to expand the tax and job base. Demographic indicators remain in-line with state averages, though modestly below the nation. RATING SENSITIVITIES Affirmation of the current rating reflects Fitch's expectation of stable financial performance and maintenance of healthy reserves at or above the county's policy minimum; failure to maintain these levels may lead to negative rating pressure. Conversely, continued economic diversification over the intermediate term could lead to upward rating action. CREDIT PROFILE The county is part of the Greenville - Spartanburg metropolitan statistical area (MSA). The county has seen strong population growth in recent years, has an estimated 2012 population of 288,725 and continues to grow at a healthy pace due to its location along the I-85 corridor between Charlotte and Atlanta . STABILIZED FINANCIAL PERFORMANCE; SPENDING PRESSURES REMAIN MANAGEABLE The county has improved its financial position since drawing on fund balance for operations from fiscal 2006 through 2009. The fiscal imbalance was caused by growth in public safety and employee healthcare spending coupled with weakened revenue performance. The county has taken steps to restore balanced operations centered on progressive millage rate increases and public safety expenditure reductions. Furthermore, the county has transitioned from a single-employer health plan to the South Carolina State Employee Insurance Program, which is expected to yield approximately $2.5 million in annual savings commencing fiscal 2015. The county ended fiscal 2013 with a $1.3 million surplus resulting in $9.9 million in unrestricted fund balance, a sound 12% of spending. The county's reserve policy targets an unassigned fund balance equal to 10%-15% of spending. Property taxes account for more than 60% of general fund sources. South Carolina's Act 388 limits annual growth in property taxes based on growth in the population and the consumer price index (CPI). The county council augmented tax revenue by increasing the millage rate in fiscal 2013 by a modest 0.9% from the prior year, well-below the millage cap. Act 388 permits issuers to 'bank' for a period of three-years unused millage capacity; Fitch estimates the county could levy close to $3 million in additional property tax revenue, if necessary. The county's tax rates remain very competitive to in-state peers. FISCAL 2014 BUDGET PICTURE The fiscal 2014 budget equals $82.6 million , a 1.2% increase over last year's, and is balanced without the use of reserves. The county expects to finish the year at or better than budget, which Fitch considers reasonable, given the combination of enhanced building permit revenue, improved current-year tax collection rates, and approximately $1 million in property tax revenue increases due to a state reassessment enacted after adoption of the fiscal 2014 budget. LIMITED BUT EXPANDING LOCAL ECONOMY Economic indicators for the county trail those of the nation and more closely reflect the state. The county's employment and labor force losses since the onset of the recession have exceeded those of both the state and the nation. As of November 2013 , the county's unemployment rate was 6.4%, down from 8.2% the prior year; the nation's was 6.6 %. The unemployment decline was caused largely by labor force contraction rather than employment growth. The county plays an integral role in the region's growing manufacturing economy. The county's employment base has shifted away from textile, knitting, and apparel manufacturing to automobile manufacturing and related industries. Manufacturing companies and trade and utilities companies now dominate the county's top taxpayers and employers. The concentration of the local economy in these industries has deepened in recent years. Over $112 million in commitments for new and expanding projects were announced within the county in 2013, expected to create approximately 1,200 new jobs upon completion. BMW has invested over $4.6 billion in the county over 20 years, and currently ranks as the county's largest employer with a total of 7,200 workers. Its most recent $900 million investment is expected to further increase employment. BMW's presence has attracted suppliers and complementary industries to the area, with nearly half of BMW's South Carolina suppliers located in the county. The South Carolina Inland Port (the port), located along the Western border of the county, opened in October of 2013 and is expected to facilitate railway freight movements between the Port of Charleston and companies located throughout the region. The port is likely to deepen economic development in the county's core industries. LOW DEBT, AMORTIZED RAPIDLY Overall debt levels are low at $899 per capita and 1.2% of market value for fiscal 2013. Total debt service for fiscal 2013 was $8.06 million (an affordable 4.9% of governmental spending). Direct debt consists mainly of GO bonds (40% of total debt) and COPS (28% of total debt), backed by hospitality tax revenues. There is no exposure to short-term debt, variable-rate instruments, or swap agreements. The county has modest future debt plans. The county's capital improvement plan for fiscals 2014 to 2018 calls for a modest debt issuance of $12.1 million distributed evenly over five years. Fitch does not expect debt levels to rise due to conservative borrowing plans and rapid amortization (71.7% of outstanding principal retired in 10 years). Current funding for pension obligations does not represent a large cost pressure. The county is a member of the South Carolina Retirement System (SCRS) and the South Carolina Police Officers' Retirement System (PORS). Annual required contributions (ARC) for each of these plans are determined by the state. For at least the last three fiscal years, the county has contributed 100% of its ARC for both funds. The state pension plan's poor funding may pressure future contributions; however, the county's current pension costs are affordable with fiscal 2013 contributions of $3.72 million SCRS and $2.83 million to PORS, totaling 4% of governmental spending. The OPEB liability does not currently pressure county finances. Spartanburg County offers a single-employer defined benefit post-retirement health care and life insurance benefits plan. The plan is funded on a pay-as-you-go basis. For fiscal 2011, the county contributed $4.7 million , equal to 1.5% of governmental spending. Funding of the entire ARC would equal 2.8% of spending. The county's transition to the EIP is expected to reduce OPEB costs in the longer-term as current employees retire, mitigating future obligations. Additional information is available at ' www.fitchratings.com '. 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 . 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 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 U.S. Local Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818154 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Primary Analyst George M. Stimola , +1-212-908-0770 Analyst Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 or Secondary Analyst Michael Rinaldi , +1-212-908-0833 Senior Director or Committee Chairperson Karen Ribble , +1-415-732-5611 Senior Director or Media Relations, New York Elizabeth Fogerty , +1-212-908-0526 elizabeth.fogerty@fitchratings.com Source: Fitch Ratings


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