--Implied general obligation (GOs) to 'AA' from 'AA-'.
In addition, Fitch upgrades the following ratings:
The Rating Outlook is revised to Stable from Positive.
The lease revenue bonds are secured by lease payments subject to annual appropriation by the county. Essential government assets are subject to a lien.
KEY RATING DRIVERS
STABLE FINANCIAL AND ECONOMIC PERFORMANCE DRIVE UPGRADE: The implied GO upgrade to 'AA' reflects the county's strong fiscal discipline and economic stability as evidenced by the maintenance of high liquidity and reserve levels, prudent investment in capital improvements, and strong economic and employment metrics despite the challenges posed by sequestration.
MODERATELY CONCENTRATED ECONOMIC BASE: A specialized military base anchors the county's stable but somewhat concentrated economy and employment base. The county benefits from strong socio-economic metrics and a relatively stable tax base.
AMPLE RESERVES AND LIQUIDITY: Strong financial management has produced exceptionally high liquidity and healthy reserves, well-above the county's conservative policy level, despite the recent use of fund balance for capital improvements.
MODERATE DEBT BURDEN: Debt and carrying costs are currently manageable, and are expected to remain so, as the county has no intermediate-term debt plans. Pension and other post-employment benefit (OPEB) contributions do not represent cost pressures.
APPROPRIATION RISK FOR LEASE REVENUE BONDS: The rating on the lease revenue bonds reflects the county's underlying credit quality, the appropriation risk included in the bond provisions, and the inclusion of essential government assets under a lien.
The rating is sensitive to shifts in fundamental credit characteristics including the county's economic performance. Federal budget cuts could negatively affect the regional economy given the preponderance of direct and indirect federally funded employment. However, Fitch considers this unlikely given the specialization and essentiality of the county's defense activity to military operations.
The county is located east of
RESILIENT ECONOMY WITH MILITARY CONCENTRATION
The stable yet somewhat limited economy has performed well throughout the economic downturn.
The limited and somewhat concentrated nature of the economy is reflected in the employment base impact of Northrop Grumman Corporation (Issuer Default Rating [IDR] 'BBB+', Negative Outlook) and Lockheed Martin Corporation (IDR 'A-', Stable Outlook). Both firms are among the county's top employers, despite a combined total of fewer than 750 employees. Approximately 55% of the county's labor force out-commutes to employment opportunities in adjacent counties and the city of
SOLID SOCIO-ECONOMIC INDICATORS
The regional employment base has supported aggressive population growth. Population grew rapidly at an average annual rate of 3.4% from the 2000 to 2010 census, well above the nation's 0.9%. Growth has moderated somewhat in recent years, falling in line with regional and national averages. Although county employment fell a small 2.2% at the beginning of the recession, it has subsequently remained flat or increased annually. The
Assessed value has also remained relatively stable over the past few years, with a decline of 4% expected in fiscal 2014 as a result of a four-year reassessment cycle. The county anticipates no further declines in future years, as the housing market has stabilized and begun to rebound, though the county has consistently demonstrated its willingness to increase the regionally low tax rate to offset declining revenues.
STRONG FINANCIAL MANAGEMENT
Reserves and liquidity have consistently remained at robust levels. For the past three years, the county has exceeded its conservative reserve policy equal to 15% of the general government operating budget, inclusive of transfers and school spending. Fitch views positively the county's efforts to maintain an independent utilities fund, which, prior to fiscal 2013, received a subsidy from the general fund. The fund was self-supporting in fiscal 2013 and is on track to maintain independent operations through fiscal 2014.
The county concluded fiscal 2013 with an unrestricted fund balance equal to
FISCAL 2014 BUDGET PICTURE
The county reports that revenues to date are in-line with the budget. Fitch believes that the limited nature of previously implemented spending reductions affords the county flexibility should it be required to generate expenditure savings.
POSSIBLE ONE TIME USES OF RESERVES MAY RESULT IN STILL SOUND LEVELS
The county has used reserves for capital investment since the onset of the economic downturn, as evidenced by spending for economic development purposes in recent years. Fitch views positively the county's use of fund balance for these purposes, given the value of new economic growth and the county's still-robust reserve levels. Management has stated its commitment to maintain reserves above policy levels. Fitch views positively the county's history of conservative budgeting and prudent fiscal stewardship, and expects these to buttress the county's financial profile in future years.
DECLINING DEBT AND OTHER LONG-TERM LIABILITIES
Overall debt levels are moderate at
Pension and OPEB contributions do not stress financial operations. County employees participate in the state-administered
LEASE REVENUE BONDS SUBJECT TO APPROPRIATION
The bonds are secured by lease rental payments, subject to annual appropriation, made by the county to the lessor, the EDA. The EDA assigned and transferred its rights to a trustee, which can take possession of and re-let the leased property in the event of non-appropriation or default. A high school is the collateral under the lease.
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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