The Negative Rating Watch is maintained.
Limited tax general obligation bonds issued by the county carry the county's general obligation ad valorem tax pledge, subject to applicable charter, statutory and constitutional limitations.
Stadium authority and building authority bonds are secured by lease payments from the county to the respective authority. The obligation to make the rental payments is not subject to appropriation, setoff or abatement for any cause, and carries the county's limited tax general obligation pledge.
KEY RATING DRIVERS
RAPID FINANCIAL DETERIORATION: The speculative grade ratings stem from the county's considerably narrowed liquidity position, the deepening of the general fund accumulated deficit and Fitch's concern regarding the limited options for elimination of the negative position.
NEAR-TERM LIQUIDITY CHALLENGES; MARKET ACCESS UNCERTAINTY: The Negative Watch reflects the county's highly illiquid general fund, dependent upon both inter-fund and external short-term borrowing for cash flow. The county anticipates issuing
STRESSED ECONOMY SLOW TO RECOVER: The weak local area economy is reflected in elevated unemployment rates, population loss, and below-average income levels. The tax base suffered significant declines during the last recession but the rate of decline has recently slowed.
REVENUE INFLEXIBILITY LIMITS OPTIONS: Steep tax base declines over the course of the recession caused property tax receipts to plummet 25% between fiscals 2008 and 2013. Strict tax rate limits and statutorily imposed controls on growth in assessments will constrain revenue recovery even as housing values increase.
LIMITED EXPENDITURE FLEXIBILITY: Deep across-the-board spending cuts have not been sufficient to restore structural balance. Carrying costs for debt, pension and other post-employment benefits (OPEB) are currently moderate but expected to rise sharply in the near term, further pressuring operations.
INABILITY TO ACCESS MARKET FOR CASH FLOW: Inability to access the market in an economically feasible manner for cash flow borrowing would severely constrain the county's liquidity position and would trigger a downgrade.
FURTHER DETERIORATION OF LIQUIDITY: Deterioration of the county's already precarious liquidity position would likely result in a downgrade.
FAILURE TO REDUCE DEFICIT: Fitch believes the county remains severely challenged to stem the decline in its financial position and show material improvement in the near term. Lack of significant progress toward accumulated deficit reduction within the current fiscal year, as evidenced by improvement in its liquidity position and unrestricted general fund balance/deficit, would place negative pressure on the rating.
NEAR-TERM LIQUIDITY PRESSURE
Stressed financial operations have led to sharp declines in liquidity. The county relies upon a pooled cash model, supplemented by external cash flow borrowing to meet its day-to-day cash flow needs. Cash flow projections show these measures will not be sufficient to provide adequate liquidity going forward, leading to higher projected amounts of external borrowing.
Careful management of pooled cash resources allowed a delay in the expected December TAN issuance. The county now expects to issue
The expected transfer of the county's
LARGE FUND-DEFICIT POSITIONS
The county's efforts to reduce its sizeable deficit fund balance positions are hindered by persistent economic pressure and a limited revenue environment. The large -
The general fund recorded a
The county's somewhat dated deficit elimination plan was filed with the state several years ago and has not yet been approved. The county is in the process of developing a new deficit elimination plan later this fiscal year which would rely on different revenue sources.
Audited fiscal 2013 results are not yet available, delayed just one month to the end of February, which Fitch still considers timely following the
The fiscal 2014 budget features a slight increase in spending and forecasts balanced operations, including a
CONSTRAINED REVENUE-RAISING ABILITY
The county's inflexible revenue structure exacerbates the budget effects of its considerable expenditure pressures. Assessed valuation declines caused the general fund annual property tax revenues to decline sharply from
The county is levying at its maximum millage as limited by the Headlee Amendment, and taxable values continue to drop. Statutory restrictions on growth in the levy and in assessments will constrain future revenue growth, severely limiting the ability of the county to benefit should housing values recover.
Other revenue-raising options are limited. As a practical matter, most significant revenue-raising efforts require voter or state support. Management is exploring the idea of requesting voter approval for an additional 1 or 2 mills. The county is subject to a requirement that a supermajority of the county commission approve any ballot proposal to increase taxes; additionally, such a proposal would require a 60% approval of the voters. Fitch is not optimistic given public statements by various county commissioners citing insufficient political support for a millage increase.
EXPENDITURE CONTROLS INSUFFICIENT TO RESTORE BALANCE
County officials have taken substantive steps to curtail overall spending but measures have not been sufficient to restore balance. Major initiatives include negotiating, or imposing where able, 10% compensation decreases for most employees and implementing health care plan design changes for current employees and retirees, reducing overall health care expenditures.
The county's expenditure framework, like revenues, suffers in part from a lack of independent control. The county is responsible for funding certain departments with separately elected leadership. Favorably, the county reached an agreement with one such department, the circuit court. The county now has greater control over court spending which totaled approximately 7% of fiscal 2012 governmental fund expenditures. The fiscal 2014 budget imposes an additional deep 20% across the board departmental spending cut. Fitch remains concerned that these steps, while significant, may not be sufficient to counteract the spending pressures and allow for elimination of the deficit.
The county faces a variety of legal actions stemming from its cost cutting measures. Management is confident it will be allowed to maintain the changes; however, the litigation introduces vulnerability to the substantial cost savings generated thus far.
ECONOMY SHOWS PERSISTENT STRESS
The economy remains heavily dependent on the auto industry, despite having lost thousands of manufacturing jobs over the past decade. Several auto manufacturers have announced plans to add jobs within the county, although auto-related employment is not expected to recover to pre-recession levels. The county takes an aggressive stance with economic development and reports success in drawing in new high-tech and engineering jobs, particularly in the 'Aerotropolis,' which surrounds the airport.
The county unemployment rate remained above the state and U.S. levels throughout the recession, but is showing signs of improvement. The seasonally unadjusted
ABOVE-AVERAGE DEBT BURDEN
The high debt burden of 7.0% is largely attributable to considerable borrowing by overlapping governments, but nevertheless presents a practical limitation on future debt issuance flexibility. The county's net direct debt is a modest 0.7% of market value. Payout is average, with 62% of long-term debt to be retired within 10 years. Future new money borrowing plans are uncertain, as plans for the jail construction are in flux.
The county recently halted the jail project, for which it borrowed
RISING LEGACY COSTS
The county maintains two single-employer pension plans, the smaller of which is currently fully funded from state contributions. The larger plan reported a 45.9% funding ratio at the end of FY2012 using the county's 7.75% return assumption, or an estimated weak 42.4% funding ratio when adjusted by Fitch to reflect a 7% discount rate. The pension actuarial required contribution (ARC) has more than tripled in recent years, from
The county currently funds its other post-employment benefits (OPEB) on a pay-as-you-go basis. The unfunded actuarially accrued liability is large at
Carrying costs for debt service, pension ARC and OPEB pay-go are currently moderate at 16.4% of governmental spending (net of capital projects and mental health funds); however, Fitch expects carrying costs to rise significantly in the near term, given the trajectory of the pension ARC, and the county's recent history of underfunding it.
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 Considerations for 2010
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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