News Column

Fitch Rates James City County, VA's GOs 'AAA' & Lease Revenue Bonds 'AA'; Outlook Stable

July 18, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns ratings to James City County, Virginia's (the county) bonds as follows:

--$20.9 million general obligation (GO) school refunding bonds, series 2014 'AAA';

--$13.35 million lease revenue refunding bonds, series 2014 issued by the Economic Development Authority of James City County, Virginia 'AA'.

GO bond proceeds will be used to refund series 2005 GO bonds and lease revenue bond proceeds will be used to refund series 2005 lease revenue bonds for debt service savings. The bonds will sell via competitive sale the week of July 21.

In addition, Fitch upgrades approximately $62.2 million of Economic Development Authority of James City County lease revenue bonds series 2006 to 'AA+' from 'AA'. The upgrade reflects the addition of collateral under the deed of trust.

Fitch also affirms the following ratings:

--$54.18 million of outstanding GO bonds at 'AAA';

--$23.93 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2012 at 'AA+'

--$12.025 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2009 at 'AA+';

--$14.66 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2005 at 'AA'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are secured by the county's pledge of its full faith and credit and its unlimited taxing power.

The 2014 lease revenue bonds are limited obligations of the Economic Development Authority of the County of James City, VA payable solely from payments to be made by the county to the trustee. Payments are subject to annual appropriation by the county board. The deed of trust includes a security interest in non-essential stadium projects.

KEY RATING DRIVERS

SOUND FINANCIAL MANAGEMENT: James City County's financial condition is consistently well managed and benefits from positive financial operations, healthy reserves and consistent fiscal policies.

FAVORABLE DEBT PROFILE: Overall debt levels should remain moderately low due to the county's limited capital needs, commitment to pay-as-you-go capital funding, and rapid amortization.

STABLE LOCAL ECONOMY: The local economy consists primarily of light manufacturing, services, and trade, the last reflecting the regional importance of tourism. Economic indicators are solid and unemployment is below average.

SERIES 2009/2012 ASSET ESSENTIALITY: The 'AA+' rating on the series 2012 and 2009 lease revenue bonds reflects the county's credit characteristics as well as appropriation risk. Lease provisions are solid and Fitch views the leased assets for these series as essential to county operations. Bondholders have a security interest in the leased assets.

2006 LEASE REVENUE BONDS UPGRADED: The upgrade of the series 2006 lease revenue bonds reflects the addition of school facilities, which Fitch views as essential, to the deed of trust increasing the collateral to par value to 100%.

2005/2014 RATING DISTINCTION: A rating of 'AA' for the series 2005 lease revenue bonds reflects the lack of a leasehold interest in any governmental facilities. An equivalent rating of 'AA' for the series 2014 bonds reflects bondholders' leasehold in a non-essential asset (stadium).

RATING SENSITIVITIES

RATING STABILITY EXPECTED: The ratings are sensitive to fundamental shifts in various credit characteristics, including the county's strong financial management practices. The Stable Rating Outlook reflects Fitch's expectation that these shifts are unlikely.

CREDIT PROFILE

James City County is located in southeastern Virginia, equidistant from Richmond and Norfolk, and has a 2013 population of 70,516, reflecting a high 47% increase since the 2000 census. The county's population is projected to further increase 22% by 2020.

STABLE ECONOMY WITHIN HAMPTON ROADS REGION

The county's economy is stable and diverse. Recreation and accommodation account for approximately 20% of the employment base. This is mostly due to the American heritage tourist attractions such as Colonial Williamsburg, the Yorktown Battlefield, and the Jamestown Settlement. A light manufacturing presence is centered upon Anheuser-Busch InBev (senior unsecured rating of 'A' by Fitch), the county's largest taxpayer and sixth largest employer, and related industries.

The New Town mixed-use development under construction, inclusive of a technology park associated with the College of William and Mary has the potential to further economic diversification. Wealth levels are high with per capita income equal to 117% and 139% of the state and nation, respectively. The May 2014 unemployment rate of 5.1% is well below state and national averages of 5.4% and 6.1%, respectively, continuing a long-standing trend for the county.

Taxable assessed value (TAV) declined 2.8% to $11.9 billion in fiscal 2013, following the 2012 biennial assessment. Estimated 2014 TAV reflects modest growth of 1.5%. Property tax revenues are the county's largest revenue source at over 64% followed by sales taxes (6%) other local taxes (6%) that include meals, lodging, business licenses and recordation taxes.

HIGH RESERVES, GOOD BUDGETARY FLEXIBILITY

The county's financial position is strong, characterized by ample reserve and liquidity levels and supported by strong financial management. Fiscal years 2010 through 2012 ended with net operating surpluses of 1.4% to 2.7% of spending followed by a modest (1.7% of spending) net operating deficit of $2.99 million in fiscal 2013 due to planned one-time capital spending. This reduced the unrestricted balance at year-end to $40.5 million or an ample 23.5% of spending.

The county derives the majority of its revenue from property taxes. The county has maintained the current tax levy for the past eight years and has not increased the tax rate in over a decade affording additional revenue flexibility.

POSITIVE FY14 RESULTS ANTICIPATED

Preliminary fiscal 2014 results show a net operating surplus. Revenues are projected to outperform the budget by $1 million and spending is expected to be under budget by $1.4 million. The estimated operating surplus of $2.4 million is expected to be added to the unassigned fund balance further strengthening the unrestricted balance.

BALANCED FISCAL 2015 BUDGET

The fiscal 2015 adopted budget is balanced without a general fund balance appropriation and is 2.2% higher year-over-year. The property tax rate remains unchanged at a competitive rate of $0.77 per $100 of assessed value (AV).

The budget funds an increased allocation to Williamsburg-James City County Schools, a base salary increase of 1% for eligible county employees and increase in the county's contribution to health and dental premiums. The budget does not include any furloughs, layoffs, or pay/benefit reductions to existing personnel. It funds a sizable contribution to pay-as-you-go capital, fully funds the actuarial requirement to the Virginia Retirement System (VRS) and contributes the pay-go amount for other post-employment benefits (OPEB). Given the county's historical financial performance, Fitch expects management to continue to maintain sound reserve levels and record favorable operating performance.

AFFORDABLE DEBT PROFILE

Fitch expects overall debt levels to remain moderately low given the county's comprehensive planning and debt affordability guidelines. Overall debt equals $2,496 per capita and 1.4% of market value, well below the county's policy of 3. The rapid amortization of nearly 68.7% in 10 years offsets the high (16.6%) debt service as a percent of governmental fund expenditures. The county's policy is to maintain debt service as a percentage of total general fund and school component unit revenues at 12% or below. The county has been in compliance with this policy since fiscal 2012.

The county's approximately $57.82 million fiscal year 2015-2019 capital improvement plan (CIP) is about half debt financed ($28.5 million). A majority ($39.6 million) of the projects are education related. Debt ratios are expected to remain low.

The county provides pension benefits via the state-wide Virginia Retirement System (VRS), an agent multi-employer defined benefit plan. The county's portion of the plan is adequately funded at 76% reflecting the plan's assumed 7% investment return assumption. The county regularly contributes its annual required contribution (ARC). For fiscal 2013 the $6.5 million ARC equaled a modest 3.3% of governmental fund spending. The county's OPEB ARC accounts for a low 0.6% of spending since the county only provides an implicit subsidy. Carrying costs for combined debt service, pension ARC and OPEB were moderate at 20% of governmental fund spending in FY13.

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, Virginia Employment Commission.

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=840516

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

Evette Caze

Director

+1-212-908-0376

Fitch Ratings, Inc.

33 Whitehall St.

New York NY 10004

or

Secondary Analyst

Andrew Hoffman

Analyst

+1-212-908-0527

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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