Fitch Affirms Cobb County, Georgia's GOs at 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Cobb County, Georgia's (the county) general obligation (GO) bonds as part of its continuous surveillance effort:

--Approximately $60.3 million general obligation (GO) bonds affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The superior 'AAA' rating reflects ample financial flexibility across operating funds evidenced by sizeable reserves and an exceptionally low tax rate.

--The county demonstrates exceptionally strong long-term credit characteristics, including sound financial management and planning, a growing and diverse area economy, a low debt burden, and significant capital funding from current resources.

--The county's pension fund is significantly underfunded, although management has implemented numerous changes in recent years aimed at improving the funded ratio.

KEY RATING DRIVERS:

--Continued declines in operating revenues and the tax digest value could erode fund balances in the short-term and exert pressure on the rating.

--Failure in 2011 to gain reauthorization of the current special purpose local option sales tax (SPLOST) from voters could threaten existing financial flexibility and prompt an increase in the county's reliance on debt issuance for capital needs.

SECURITY:

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

CREDIT SUMMARY:

As part of the Atlanta metropolitan statistical area (MSA), the county's economy has diversified significantly over the years, leading to above-average wealth levels, historically good employment indicators and solid population growth. A diverse group of major corporations and military-related operations provide the majority of private sector employment in the county. WellStar Health Services, Inc. and Lockheed Martin Corp. are the largest county private employers with over 9,000 and 6,000 employees, respectively. Similar to regional and national trends, employment gains and growth in the tax digest have abated since the beginning of the housing downturn and economic recession. Despite the rise in joblessness, the county's unemployment rate of 10% in June 2010 still measures slightly below the regional and state averages but is somewhat higher than the national figure. Income levels continue to rank well above the MSA, state and national indicators, and while home foreclosures are still above historical levels, property tax collections are reportedly down by a manageable 1%.

Audited results for fiscal 2009 show a small operating surplus in the general fund of about $1.2 million, despite significant negative variances in both property tax and non-ad valorem tax revenues relative to the adopted budget. The decline in budgeted property tax revenues was driven by a slight decline in the tax digest coupled with a millage rate that went unchanged. Declines in non-ad valorem revenue were driven by broader economic pressures, although revenue declines were offset by mid-year budget cuts, which included implementing a hiring freeze, eliminating unfilled positions and merit and overtime pay, and reducing pay-go capital spending. The slight operating surplus in fiscal 2009 resulted in a $33.5 million unreserved, undesignated general fund balance, equal to the county's policy established minimum balance of 10% of budgeted expenditures. A $13.4 million unreserved, undesignated fund balance in the county's second operating fund, the fire district fund, is equal to a strong 19% of spending and transfers out and provides additional operating financial flexibility.

While tax base growth has been solid in recent years, averaging almost 7% annually since 2003, 2008 registered a much slower rate of growth (3.8%), and the 2009 digest shows a slight decline in assessed value. The amended fiscal 2010 budget reflects an even larger decline in residential and commercial property values and assumes no change in the operating millage rate. After again reducing pay-go for capital projects and making additional smaller budgetary adjustments throughout the current fiscal year in order to offset continued declines in tax revenues, the county now expects to end the year with close to break-even results in its operating funds. While the ongoing budgetary pressures are concerning, Fitch believes the county's management team has demonstrated a proactive willingness to respond accordingly and preserve its strong financial profile.

Driven by poor investment returns, funding for the county's pension remains weak for the rating level at 55% as of the latest valuation (Jan. 1, 2010), though management has implemented numerous measures aimed at improving the funded ratio over the coming years. In fiscal 2008, the county established a trust with an initial deposit equal to its actuarially required contribution of $19.5 million to begin pre-funding its OPEB liability, which is estimated at $235 million, equal to nearly three-quarters of the 2009 general fund budget. In conjunction with the establishment of the trust, the county prudently reduced benefits for some existing employees and all new employees in order to reduce the long-term liability.

The county's very low debt levels are the result of sound capital planning that includes a substantial amount of pay-as-you-go financing and rapid debt amortization. Overall debt, which includes overlapping units, is low at $453 per capita and 0.41% of market value. Like most local governments in Georgia, the county utilizes a voter-authorized 1% Special Purpose Local Option Sales Tax (SPLOST) to finance various capital projects. The current SPLOST, which expires at the end of calendar 2011, is funding the construction of a new jail, a new courthouse, the replacement of the countywide 800 mhz radio system, and transportation improvement programs. Projected collections over the life of the SPLOST term are reportedly down by about $40 million relative to the original forecast. Continuation of the SPLOST beyond 2011 will be decided by voters in March 2011. Voters approved the authorization of an additional $40 million in GO debt issuance, although the county has no plans to issue long-term debt at this time given current economic conditions.

Additional information is available at 'www.fitchratings.com'.

Related Research:

'Tax-Supported Rating Criteria', dated Aug. 16, 2010.

'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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