News Column

Fitch Rates Kenosha County, WI's $11.925MM GOs 'AA'; Outlook Stable

August 8, 2014

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

--$11.925 million general obligation (GO) promissory notes series 2014A.

The current offering will finance various capital projects within the county. The notes are expected to price via competition on Aug. 19.

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

IMPROVED FINANCIAL PERFORMANCE AND RESERVES: The county has improved annual financial performance as demonstrated by recent positive operating margins across various funds, increased reserves, and an ability to maintain adequate financial flexibility under a recent, more restrictive state law limiting revenue growth.

STRENGTHENED MANAGEMENT PRACTICES: Financial management is strong and has improved performance with conservative budgeting and implementation of multi-year forecasting.

SIGNIFICANT TAX BASE DECLINES REVERSING: The county tax base is preliminarily expected to grow 2.81% in 2015 reversing a cumulative 22% AV decline since 2008. Significant new commercial/industrial development activity coupled with stabilizing residential values is expected to generate tax base growth over the near term.

AVERAGE ECONOMIC PROFILE: Following a significant spike in county unemployment rates in 2009 and 2010, overall county population, labor force and employment levels have all exhibited stronger than state and national growth rates and greatly improved county unemployment rates. County wealth levels are generally on par with state and national levels.

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. Enterprise operations are expected to remain self-supporting.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices and expectations for sustained moderate economic and tax base growth. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Kenosha County comprises an area of 272.8 square miles in southern Wisconsin, bordering Illinois. The county seat is the City of Kenosha which is located 30 miles south of Milwaukee and 60 miles north of Chicago. The county's population has grown a moderate 12.2% since 2000, to an estimated 167,757 in 2013.

IMPROVED OPERATING PERFORMANCE AND RESERVES

Over the past two years the county has restored structural balance to the general and various other government funds and demonstrated an ability to maintain adequate financial flexibility despite a 2011 state law that limits growth in property tax revenue. Balanced general fund performance was enhanced by transfers in from various enterprise/special revenue funds which posted operating surpluses in 2012 and 2013. As these transfers may be non-recurring, general fund balance was achieved through modest tax rate increases offsetting tax base declines; improving sales tax revenues; staffing and benefit cost cuts; and more conservative budgeting offsetting increased tax delinquencies.

Net general fund operating surpluses in 2012 and 2013 resulted in a total $4.6 million addition to general fund balance, bringing unrestricted general fund balance to $12.7 million or 22% of general fund spending, well above the county policy of 17%.

For fiscal 2013, property taxes comprise slightly over 50% of general fund revenues followed by sales taxes at 19% and charges for services at 15%. Leading general fund expenses are for public safety at 60% not including the county federal inmate program.

The county budgets and accounts for the operations of its nursing home and federal inmate fund as well as the health and social services fund independent of the general fund and annually lapses fund surplus, if any, back to the general fund. Management's goal is to insure that these funds are at a minimum self-supporting without any general fund support. Fitch believes management has instituted strong oversight and monitoring procedures and that these funds pose moderate financial risk to the general fund.

Management indicates that fiscal 2014 general fund performance is tracking positively to budget with continued sales tax revenue growth, up a very strong 16.7% January through May compared to prior year period. Managements' general fund forecast indicates 2014 will close with no material changes to overall reserves. Fitch believes that such projections are reasonable given year-to-date performance and the county's conservative budgeting approach.

RECOVERING ECONOMY; MODERATE GROWTH EXPECTED

The county's longtime manufacturing dominated-economy is proximate to the Chicago and Milwaukee employment centers. It was hit hard during the recent recession with significant increase in unemployment and valuation declines but is showing signs of recovery. A significant economic impact was the 2008 closure of the Chrysler Motors engine assembly plant which employed over 1,000.

This and other losses caused county unemployment rates to spike to over 10% for 2009 and 2010. The county population and labor force remained stable and growing. Recent commercial/industrial activity within the county's multiple business/office parks has improved the county unemployment rate to 6.1% in June 2014, on par with state and national levels. The 2012 county per capita money income levels are slightly above state (105%) and national (104%) levels.

Over the past two years the county has benefitted from improved interstate access via I-94. New commercial/industrial development activity totals over $800 million of capital investment currently in process and an expected 4,000 new jobs expected over the next few years. One of the major current development projects is Amazon.com, Inc. which is currently investing over $300 million constructing a 1.5 million square foot fulfillment center complex in the city of Kenosha which is expected to employ 1,600 full-time and up to 2,500 at peak times. Other major developments in process are regional distribution centers, manufacturing and retailing. Fitch expects the current development to have a positive impact on overall county economic indicators.

The county employment base includes numerous educational institutions, two large healthcare providers and numerous global commercial/industrial firms. Top current employers include the city and county governments, the county school district, Carthage College, Gateway Technical College and University of Wisconsin - Parkside campus; United Health Systems and Aurora Healthcare.

The county tax base is predominantly residential (72% of 2013 equalized value) and contracted a high 22% between 2008 and 2014 due to declines in home prices. Preliminary state estimates for county 2015 valuation indicate a 2.8% valuation increase for 2015.

MANAGEABLE LONG-TERM LIABILITIES

The county's credit profile benefits from moderate overall debt, rapid amortization (91% retired in 10 years), and manageable future borrowing plans. Overall debt is $3,347 per capita and 4.4% of market value. Annual debt service equaled 7.5% of total governmental fund spending in 2013. The county's capital plans in the near term are manageable, with a moderate $8-10 million in annual borrowing of the next few years. The new debt would roughly replace amounts amortized annually. The county's cost of carry for combined debt, pension, and OPEB is moderate at 13.2% of 2013 governmental fund spending.

The county is evaluating issuing approximately $18 million to fund improvements and expansion at its Brookside nursing home. The county facility has had positive operations over the past decade and there is significant demand for additional capacity and services. The county expects to maintain this and all enterprise related debt as self-supporting. Fitch believes that while expanding nursing home operations may present risks, management's close oversight of these operations should enable continued balanced operations.

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 $3.6 million or 2.5% of total 2013 governmental fund spending. Recent changes in pension funding requirements may help contain cost growth, due to state reductions in required duty disability pension payments as well as an increase in contributions by non-uniform employees.

The county adopted a new other post-employment benefit health insurance policy effective January 2013 which changed eligibility and benefits resulting in reduced annual OPEB costs and unfunded liabilities. The county contributed $3 million for OPEB costs in 2013 or 63% of the actuarially-based annual required OPEB cost. Had the entire cost been paid it would represent a low 3.3% of 2013 total governmental spending. The county's unfunded actuarially accrued liability is minimal at less than 0.5% of market value.

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=848354

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

Director

+1-212-908-9167

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Stephen Friday

Analyst

+1-212-908-0384

or

Committee Chairperson

Amy Laskey

Managing Director

+1-212-908-0568

or

Media Relations:

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

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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