News Column

Fitch Affirms Pickens County, SC's GOs at 'AA'; Outlook Stable

May 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following Pickens County, South Carolina (the county) general obligation (GO) bonds:

--$2.6 million GO bonds, series 2003 at 'AA';

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county secured by its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: Financial flexibility is ample, as evinced by robust reserve levels, high liquidity levels, and sizable discretionary spending for pay-go capital.

LIMITED ECONOMIC PROFILE: Manufacturing continues to play a large role in the local economy, though this concentration is somewhat offset by large higher education, healthcare and local government sectors. Economic indicators remain slightly below average.

LOW DEBT AND CARRYING COSTS: Debt levels are very low and direct debt is expected to remain so given minimal capital needs and rapid principal amortization. Pension and other post-employment benefit (OPEB) liabilities do not represent large cost pressures and overall carrying costs for debt service, pension and OPEB are low.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's stable economic base and strong financial management profile. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Pickens County is a largely rural county in the Blue Ridge Mountain region of northwest South Carolina, located 119 miles from Charlotte, NC. The population of 119,670, as of 2013, has remained essentially flat in recent years.

SIGNIFICANT FINANCIAL FLEXIBILITY

The county maintains significant financial flexibility as evidenced in its large general fund balances, relatively low tax rates and ample taxing margin. Fiscal 2013 general fund balance was $28.6 million, or 76% of spending, of which nearly all was unrestricted. Fiscal 2013 ended with a modest use of $307,000 of reserves attributable to a one-time capital item: approximately $2 million, or 5.2% of spending, for the construction of an office building and the renovation of a consolidated magistrate building. General fund liquidity is strong.

Reserves have increased in five of the last seven fiscal years, with draws in fiscal years 2009 and 2013 for capital. Expenditure reductions have been minimal, retaining considerable flexibility going forward. Officials expect to close fiscal 2014 with a $700,000 net operating deficit after transfers, including a $1 million one-time transfer for road maintenance.

The bulk of county revenues are derived from property taxes, so its positive financial performance has been aided by sustained tax base growth. Taxable assessed value (TAV) increased steadily throughout the recession with 2014 marking the first decline in six years, for which a slight drop of .9% is projected. South Carolina law mandates reassessments every five years, with the option for local governments to delay reassessment for a year further. The county last reassessed its base in 2010 (on 2009 values) and has begun the process for 2015; the county is expecting TAV to remain flat, which Fitch believes is reasonable given recent housing market and development trends.

Fitch views positively the county's preserved taxing flexibility as a cushion to offset unanticipated expenditures in future years. The county's conservative financial management has long held tax rates flat. The available margin under the fiscal 2014 tax cap is 4.2 mills, which represents potential additional revenue of $1.9 million. State law under Act 388 limits annual millage increases to a function of population growth and change in the consumer price index (CPI) with a three year look-back for municipalities that historically have not levied up to the cap.

MODEST ECONOMIC GROWTH

Economic growth has been somewhat hindered by the county's distance from Interstate 85, which connects the major southeastern cities. Employment declined during the recession, but has begun to rebound, with modest growth of 0.1% over the past decade, while still below the nation (0.4%) and state (0.7%) over the same period.

The local employment base remains centered on government and education, though the county's economy has shifted away from small- to medium-sized manufacturing companies, which have declined among top employers, offset by expansions in health care. Duke Energy and Blue Ridge Electric Coop are the county's largest taxpayers and collectively represent approximately 5.3% of the total taxable assessed valuation (TAV).

Clemson University (the university) lends stability to the employment base, as do state and local governments, which employ a large number of county employees. The university is the county's largest private employer with over 3,500 employees, and its affiliated automotive research institution has begun to see growth after a recession-driven slump in private investment with BMW U.S.A, and Michelin (IDR of 'BBB+', Outlook Stable) both committing to operations at the institution.

Wealth indicators for the county are below state averages and at least 20% below national averages. Population growth over the past decade has been modest, as strong growth through 2008 gave way to recessionary softening. The county's unemployment rate has traditionally exceeded that of the nation; however, as of March 2013, county unemployment (4.6%) was well below the state's (5.4%) and the nation's (6.8%).

EXCEPTIONALLY LOW DEBT AND CARRYING COSTS

Overall debt levels are very low at $307 per capita and 0.4% of market value. Debt service for fiscal 2013 totaled $3 million, or a modest 5.6% of governmental spending. Principal amortization is rapid at 68.4% in ten years. Fitch considers the county's firm commitment to pay-go funding a credit positive as it contributes to the county's low debt burden. Future capital needs are minimal and the county does not intend to borrow over the next two years.

Retirement costs are manageable. The county participates in two state-administered pension plans, the South Carolina Retirement System (SCRS) and Police Officers Retirement System (PORS), both of which are cost-sharing, multi-employer defined benefit plans. For fiscal 2013, the county contributed an aggregate $2.3 million (an affordable 4.2% of governmental fund spending) to SCRS and PORS. The plans report funding levels of 65% and 71%, respectively. Fitch estimates the funding levels to be 61% and 67%, respectively, based on a 7% investment rate of return. While these funding levels are somewhat low, Fitch estimates that the unfunded liability is not sizable relative to the local resources. Further, recent pension reforms are expected to improve funding levels. The county's pension costs are expected to remain affordable as Fitch believes the relatively low annual required contribution (ARC) could increase appreciably before pressuring county carrying costs.

Fitch views positively the county's prudent management of its OPEB liability. The county eliminated OPEB for employees hired after June 1, 2010, which only covers retirees to the age of Medicare eligibility, limiting the county's long-term liability. For fiscal 2013, the county contributed $209,000 (0.4% of governmental spending), equal to 23% of the $1.7 million (1.7% of governmental spending) annual OPEB cost. As of June 30, 2012, the unfunded actuarially accrued liability totaled $7.9 million (a low 0.1% of market value). Carrying costs for pension, OPEB and debt service are low at 10.2% of governmental fund spending.

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=829710

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.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst:

Patricia McGuigan, +1-212-908-0675

Director

or

Committee Chairperson:

Arlene Bohner, +1-212-908-0554

Senior Director

or

Media Relations:

Elizabeth Fogerty, New York, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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