News Column

Fitch Upgrades Various Gloucester County, VA Ratings; Outlook Stable

August 14, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings upgrades the following Gloucester County, Virginia (the county) bonds:

--$7.2 millionEconomic Development Authority of Gloucester County lease revenue refunding bonds, series 2006 to 'AA-' from 'A+';

--Implied general obligation (GO) rating to 'AA' from 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the Economic Development Authority (EDA) of Gloucester County, VA and are payable from lease rental payments from Gloucester County to the trustee, subject to an annual appropriation by the county board of supervisors.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: The upgrade of the implied GO to 'AA' recognizes the county's conservative budgeting practices, consistently positive operating results, and maintenance of high financial reserves.

SOMEWHAT LIMITED ECONOMY: The county serves largely as a bedroom community for commuters to Newport News and York County. Local wealth indicators are sound and the unemployment rate is consistently below the national rate.

AFFORDABLE DEBT RATIOS: Fitch expects the debt burden to remain low due to limited capital needs coupled with pay-as-you-go capital funding. The county's modest debt burden is inclusive of a small amount of utility debt as the fund is not self-supporting.

APPROPRIATION RISK AND ESSENTIAL ASSETS: The 'AA-' rating on the lease revenue bonds reflects the county's GO credit characteristics as well as the essentiality of the leased assets and adequate legal provisions.

RATING SENSITIVITIES

STABLE CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Gloucester County is located in the Hampton Roads region of southeastern Virginia, approximately 60 miles east of Richmond and 50 miles north of Norfolk. Population growth has held relatively flat with the county's estimated 2013 population of 36,834 representing an increase of approximately 6% from the 2000 census.

PRUDENT FINANCIAL MANAGEMENT

Gloucester County continues to maintain a sound financial profile and reserves well above its policy that unassigned fund balance shall be no less than 10% of governmental fund expenditures, less any capital projects funded with bond proceeds. The county ended fiscal 2013 with an operating surplus after transfers of $1.8 million, increasing the unrestricted fund balance to $18 million, or 32.5% of general fund spending.

The majority of general fund revenues come from property taxes (65.7% in fiscal 2013). The tax rate remains competitive and is not subject to any limitations. General fund expenditures increased by 9.2% in fiscal 2013, primarily as a result of a 2% salary increase for county and school employees and increased local funding towards schools to make up for a decrease in federal funding. Education and public safety are the county's primary general fund expenditures accounting for 61.7% of spending after transfers in fiscal 2013.

POSITIVE OPERATIONS ANTICIPATED FOR FISCAL 2014

The fiscal 2014 budget was adopted with no tax rate increase, and a $1.6 million general fund balance appropriation (2.7% of budgeted spending). Preliminary year end results indicate a modest operating surplus that will be used to strengthen the county's already ample reserves. The strong performance compared to budget was reflective of a continued positive trend in public service taxes and stronger than budgeted personal property collections.

BALANCED FISCAL 2015 BUDGET

The fiscal 2015 budget is balanced with no tax rate increase and a $1.9 million fund balance appropriation. There were no salary adjustments included in the budget. Fitch expects the county to continue to maintain ample reserve levels based on historically conservative and prudent financial management.

The general fund continues to provide support for the utility fund. The county included a $673,758 transfer to the utility fund in fiscal 2015 budget. The county anticipates subsidizing the utility fund until at least fiscal 2018 when debt service costs are expected to be more manageable, although transfers may continue after fiscal 2018 to help build utility fund reserves.

FAVORABLE DEBT PROFILE

Gloucester County has historically adopted a conservative approach to debt management. Fitch expects overall debt ratios, at 2% of market value and $2,288 per capita, will remain low in the foreseeable future as the county does not currently have any debt plans. Direct principle amortization is rapid at 69% retired over the next 10 years.

The proposed fiscal 2015-2019 capital improvement plan (CIP) totals $56.5 million, of which $49.4 million is related to general capital projects and $7.1 million is related to utility projects.

County employees participate in the statewide Virginia Retirement System (VRS), an agent multi-employer defined benefit plan. The county makes annual payments as determined by the state that equal its annual required contribution (ARC). The county's portion of the plan is funded at 78.4%, reflecting the plan's assumed 7% investment return assumption.

Other post-employment benefits (OPEB) are offered to all county retirees as an implicit subsidy; school board retirees are partially subsidized. The unfunded actuarially accrued liability of $10.7 million represents a nominal 0.3% of market value. Carrying costs (including debt service, pension, and OPEB) accounted for a low 11% of general government spending in fiscal 2013.

BEDROOM COMMUNITY

The county serves as a bedroom community to the Hampton Roads region, home to a large regional military presence that includes all four branches of the U.S. armed services. Local employment options are available in the service, retail, and governmental occupations and more than half of the county's labor force commutes to jobs in surrounding Newport News and York County. The county's unemployment rate (5.1% in June 2014) is consistently below the state and national average. The county has seen employment growth of 1.4% over the last year, although the employment base remains below pre-recession levels. Wealth indicators are below state levels and on par with the national average. The individual poverty rate of 9.1% is significantly lower than the national average of 14.9%.

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, 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=851555

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

Andrew Hoffman

Analyst

+1-212-908-0527

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Evette Caze

Director

+1-212-908-0376

or

Committee Chairperson

Karen Ribble

Senior Director

+1-415-732-5611

or

Media Relations:

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

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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