News Column

Fitch Rates $84.5MM Dane County, WI GOs 'AA+'; Outlook Stable

June 6, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA+' rating to the following Dane County, WI (the county) securities:

--$28.8 million general obligation (GO) corporate purpose series 2014B;

--$35.4 million GO promissory notes series 2014A;

--$20.3 million GO promissory notes series 2014C.

The current offerings will finance various equipment purchases and capital improvements at the county zoo, solid waste facility and airport. The bonds and notes are expected to price via competition on June 12.

Additionally, Fitch affirms approximately $235 million in outstanding GO bonds and promissory notes at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The county pledges its full faith and credit and unlimited taxing power for the repayment of principal and interest.

KEY RATING DRIVERS

CONTINUING STRUCTURAL BALANCE: Fitch believes the county has restored structural balance as demonstrated by recent positive operating margins, improved reserves, and an ability to maintain adequate financial flexibility under a recent, more restrictive state law limiting revenue growth.

STRONG FISCAL MANAGEMENT: Financial management is strong and has improved with more conservative budgeting and recent implementation of multi-year forecasting.

FAVORABLE ECONOMIC PROFILE: The county benefits from above-average wealth levels, low unemployment, and a historically stable economic base centered on the state capital of Madison.

MANAGEABLE LONG-TERM LIABILITIES: The overall debt burden is moderate and amortization is rapid. Pension costs should remain manageable, given state-wide changes in employee contributions. Other post-employment benefit (OPEB) costs are minimal.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL FLEXIBILITY AND DEBT PROFILE: Maintenance of the current rating is dependent on the county's ability to maintain structural balance, adequate financial flexibility, and moderate debt levels.

CREDIT PROFILE

Dane County is home to the state capital of Madison and is the second most populous and third wealthiest county in Wisconsin. The county's population has grown a healthy 20% since 2000, to an estimated 509,939 in 2013.

EVIDENCE OF ONGOING STRUCTURAL BALANCE

Fitch believes that the county has restored structural balance and demonstrated an ability to maintain adequate financial flexibility despite a 2011 state law that limits growth in property tax revenue. Strong positive operating margins in 2011 and 2012 reflect a willingness to enhance general fund position with recurring and one-time revenues, economic recovery in sales and property tax collections, and more conservative budgeting.

The county exceeded budget in 2012 with a $6.7 million addition to fund balance (3.1% of 2012 spending and transfers), bringing unrestricted balance to $21.9 million or 10.5% of spending. Positive operations were driven by sales tax performance, up 3% from year prior; additional intergovernmental revenue in human services, which reduced general fund support; and more conservative budgeting of staffing expenses. Additional improvement in position was driven by $1 million in budgeted addition to fund balance as well as the release of $2 million in fund balance reservations against delinquent property taxes.

The county continued efforts to augment its fund balance with its 2013 budget, which contained a $1 million increase. Preliminary audit results for 2013 indicate a $4 million GF surplus with a $1.1 million increase in the unreserved portion to $22 million or 11% of expenditures. The county experienced strong positive performance relative to budget, with sales tax up 5.1% over the prior year coupled with tight expenditure controls. Positive operating performance has improved general and other fund liquidity.

Management indicates that fiscal 2014 GF performance is tracking positively to budget with continued sales tax revenue growth, up 8% in the first quarter compared to 2013. Management projects additional budget upside from continued declines in delinquent property taxes and positive variances in human services. Fitch believes that such projections are reasonable given year-to-date performance and the county's conservative budgeting approach.

The county implemented multi-year financial projections with its 2013 budget which shows manageable out-year deficits of $3.5 million in 2014, growing to $13 million in 2017 (6.3% of 2012 spending). Fitch believes these gaps are manageable given conservative assumptions and a willingness to make structural adjustments. Further, Fitch views the county's implementation of forecasting as an important tool in navigating the more restrictive revenue environment and expects continued progress towards a level of financial flexibility adequate for this above-average rating level.

STRONG, STABLE, DIVERSE ECONOMY

The county's economy is resilient and wealthy. Per capita money income, which is negatively skewed by a large student population, is nonetheless above both the state (122%) and national (119%) averages. Residents are highly educated with 45% reporting attaining higher education as compared with the national average of 28%.

The economic base is diverse, anchored by government, education, healthcare, and insurance. Top employers include the federal, state, and county governments, Madison Metropolitan School District, University of Wisconsin and affiliated healthcare providers, and Oscar Meyer Foods Corporation. Epic Systems Corp., an electronic health records company, is growing rapidly with about 6,800 employees reported in 2013, up from 3,950 in 2010. The county's unemployment rate remains low at 4.4% in March 2014, well below the state (6.7%) and national (6.8%) averages.

Taxable assessed valuation contracted modestly from 2010 through 2013 and is marginally up for 2014. Management's current projections through 2017 are for 1.5% assessed valuation growth, which Fitch feels is reasonable given recent evidence of housing market recovery and current new development activity.

MANAGEABLE LONG-TERM LIABILITIES

The county's credit profile benefits from moderate overall debt, rapid amortization (84% retired in 10 years), and manageable future borrowing plans. Overall debt is $3,146 per capita and 3.2% of market value. Annual debt service equaled 5.3% of total governmental fund spending in 2012. The county's capital plans in the near term are manageable, with a manageable $20-25 million in annual borrowing of the next few years.

The county participates in a state-run defined benefit pension plan, which is well funded at nearly 100% as of its 2012 valuation or a Fitch-estimated 98% under a 7% rate of return assumption. Actuarially-based payments for the plan are low at $18.5 million or 4.3% of total 2012 governmental fund spending. Recent changes in pension funding requirements may help contain cost growth, with an approximate $1.8 million annual decrease due to state reductions in required duty disability pension payments as well as an increase in contributions by non-uniform employees from 2% of payroll at the beginning of 2013 to 7% for 2014.

The county's other post-employment benefits are limited to an implicit rate subsidy, which the county funds on a pay-go basis and represented 0.3% of governmental (net of capital) fund spending in 2012; Had the county funded its ARC, the payment would still have represented a low 1.8%. The county's unfunded actuarially accrued liability is minimal at less than 0.1% of market value.

The county's cost of carry of debt, pension, and OPEB is low at 9.9% 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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and Zillow.

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=833439

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

Bernhard Fischer, +1-212-908-9167

Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Stephen Friday, +1-212-908-0384

Analyst

or

Committee Chairperson

Amy Laskey, +1-212-908-0568

Managing Director

or

Media Relations

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

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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