News Column

Fitch Rates Maryland-National Capital Park & Planning Commission's GOs `AAA'

May 30, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AAA' rating to the following Maryland-National Capital Parks and Planning Commission (MNCPCC) bonds:

--$14 millionMontgomery County GO Park acquisition and development project bonds, series MC-2014A.

Proceeds of the bonds will be used to fund park acquisition and development projects in Montgomery County (the county), Maryland. The bonds are scheduled for sale on June 5, 2014.

In addition, Fitch affirms the following ratings:

--$29.4 million MNCPPC Montgomery County Park Acquisition and Development GO Bonds, various series.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the MNCPCC and county, secured by a mandatory tax levy on the county's portion of the metropolitan district as well as the county's unlimited taxing authority on all property within its borders.

KEY RATING DRIVERS

CREDIT STRENGTHS OF MNCPPC AND MONTGOMERY COUNTY: The 'AAA' rating reflects the GO pledge and creditworthiness of the MNCPCCMNCPPCMNCPCC and the GO pledge of Montgomery County (the county; GOs rated 'AAA' by Fitch). Given the double-barrel pledge, if at any point in the future the ratings of the entities diverge, the rating on the MNCPCC bonds should always reflect the higher of the two ratings.

MNCPCC CREDIT PROFILE: The MNCPCC's `AAA' GO credit profile reflects sustained financial performance, low debt and strong financial policies somewhat tempered by its lack of independent revenue raising authority and required operating budget approval by the county. However, this risk is offset in part by its limited programmatic mission centered on the acquisition, operation, and maintenance of a sizeable and highly regarded regional parks system.

SIGNIFICANT DEBT SERVICE LEVY FLEXIBIITY: Proceeds from a state-mandated limited ad valorem tax on taxable property within the metropolitan district are educated to the repayment of bond principal and interest. Maximum annual debt service (MADS) on the bonds consumes only approximately 10% of the 2014 levy. The MNCPCC utilizes the excess levy for operations.

WELL MANAGED DEBT: Overall debt levels are low and the aggressive amortization of outstanding principal affords the MNCPCC future financing flexibility.

DIVERSE AND EXPANDING UNDERLYING ECONOMY: The county benefits from its central location in the national capital region and its well-developed transportation infrastructure. Thus attracting a strong economic base centered upon vital government operations, healthcare and higher education. County unemployment rates consistently perform better than the regional, state and national averages and local income indicators are above average.

SOUND FINANCIAL PERFORMANCE: Maintenance of financial resources and flexibility is a key rating driver for the MNCPCC, given the limitations of its operating and governing structure. A decline in reserve levels is expected over time based on the parks and planning initiatives but will remain adequate.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics of the MNCPCC and, if those were to deteriorate, the county. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

FOCUSED MANDATE

The MNCPPC is a bi-county agency, empowered to plan, acquire, develop, maintain and administer a regional system of parks of approximately 62,000 acres comprising nearly all of Prince George's County and Montgomery County. The MNCPCC develops and operates a variety of parks and recreational facilities in both counties and administers the recreation program in Prince George's County, which includes a diverse array of cultural activities.

The MNCPCC also prepares and periodically reviews a general plan for the entire district including master plans for transportation, parks and open spaces and public facilities and also studies and makes recommendations with respect to all requested zoning applications. The MNCPCC employs over 2,000 year-round employees and over 4,000 seasonal workers. Two regional offices are maintained, one in each county and the MNCPCC holds regular monthly meetings.

Each county appoints a five member planning board member to the MNCPCC to facilitate, review and administer the matters affecting their respective counties. The MNCPCC's major source of funding is property taxes levied on an individual county basis. Separate accounts for each county are maintained within the MNCPCC's general fund for transparency purposes. The MNCPCC issues debt separately for each county, not for the MNCPCC as a whole.

SIGNIFICANT PLEDGED REVENUES

State law requires the county to assess a levy of at least $0.036 per $100 of assessed value (AV) on all real property and at least $0.09 per $100 AV of all personal property located within the metropolitan district. The proceeds of this tax are pledged to payment of debt service on all MNCPCC bonds issued for the county's behalf, with any amount not needed for debt service available to the MNCPCC for its authorized purposes. The county has no claim to revenues generated by this tax. MADS on the bonds consumes 9.6% of the 2014 mandatory levy. Debt service is descending allowing for additional future flexibility.

ECONOMIC PERFORMANCE REMAINS VERY STRONG

Montgomery County continues to exhibit a very impressive economic profile. The county has gained employment each year since 2009. Consequently, the March 2014 unemployment rate was low at 4.5%, well below those of the U.S. (6.8%) and Maryland (5.8%).

The county remains one of the wealthiest in the country, with per capita money income and median household income at 173%-181% of the national benchmark. Favorable wealth characteristics are fueled by the highly educated workforce (almost 57% of the adult population holds a bachelor's degree or higher compared with 28% for the nation) and the significant presence of the U.S. government and contractors in the information and intelligence, biotechnology and high-tech manufacturing industries.

Federal government employment is led by the U.S. Department of Health and Human Services (28,000 employees) and the U.S. Department of Defense (DoD; 13,000 employees). Concerns with respect to budget cuts at the DoD are somewhat tempered by the nature of defense operations in the county, which center on the Walter Reed National Military Medical Center and the U.S. Army Research Laboratory and continuous investment. The Walter Reed Army Medical Center was relocated from its prior location in Washington, D.C. to the campus of the National Naval Medical Center in Bethesda in November 2011, a move that is expected to generate visitor and outpatient traffic to the facility (benefiting private enterprise).

The Maryland National Capital Planning Commission has approved a plan to build a new $300 million federal intelligence campus in Montgomery County that will serve as home to 3,000 employees of the office of the Director of National Intelligence, and notable investments for new facilities for the Nuclear Regulatory Commission and the National Institute of Allergy and Infectious Diseases.

HEALTHY FINANCIAL RESERVES

MNCPPC's financial position remains strong following three consecutive years of large operating surpluses stemming from conservative financial management. Between fiscal 2011 and 2013 MNCPPC has generated a cumulative surplus of approximately $7.15 million. At year-end fiscal 2013 the unrestricted balance totaled $21.97 million or a healthy 20.8% of general fund operations.

PROJECTED FISCAL 2014 RESULTS AND BEYOND

For fiscal 2014, the MNCPCC appropriated approximately $4.3 million of fund balance. Year-to-date projected year-end results show a more modest $1.3 million operating deficit or just 1% of budgeted spending due to conservative budgeting. The unrestricted balance is expected to remain ample at $20.7 million or a healthy 18% of general fund spending.

The MNCPCC's multi-year financial forecast shows use of all but $11.1 million of its reserves, which would leave it with 7.5% of expenditures. The drawdown is forecasted primarily for operating purposes. The remaining reserve would be above the 3% fund balance policy but well below historical levels. Fitch expects reserves to remain adequate based on historical trends and management practices.

MANAGEABLE DEBT AND CAPITAL NEEDS

MNCPCC debt levels are expected to remain low given the MNCPCC's rapid amortization rate and modest plans for additional debt. Debt service costs accounts for a modest 4.3% of governmental spending. The MNCPCC evaluates its capital needs with input from the county, the state, and local residents. The six-year fiscal 2014-2019 capital improvement plan (CIP) related to Montgomery County totals $231.5 million with development projects accounting for slightly over 79% of all needs and acquisition projects making up the remainder. Amortization of outstanding debt is quite rapid with 66% of principal scheduled to be retired within the next 10 years and 100% in 20 years.

MNCPCC pension and other post-employment benefits (OPEB) are well-managed. The MNCPCC resumed funding 100% of its annual required contributions for the pension in fiscal 2012 following a steep increase in 2011 due to investment losses. The MNCPCC's pension plan reported an 83% funded ratio in fiscal 2013. Fitch estimates the funded ratio at an adequate 80% when adjusted to reflect a 7% investment rate of return.

The MNCPCC is engaged in an eight-year phase-in to reach the ARC for its OPEB obligation. The proposed fiscal 2015 budget includes funding of 109.6% of the ARC. The MNCPCC's unfunded actuarial accrued liability is minimal relative to the tax base.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Real Estate Business Intelligence.

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=832345

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, Inc.

Primary Analyst

Evette Caze

Director

+1-212-908-0376

Fitch Ratings, Inc., 33 Whitehall Street, New York, NY 10004

or

Secondary Analyst

Patricia McGuigan

Director

+1-212-908-0675

or

Committee Chairperson

Arlene Bohner

Senior Director

+1-212-908-0554

or

Media Relations:

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

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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