Fitch Rates Gwinnett County Water & Sewerage Auth and Gwinnett County Dev Auth, GA Revs 'AAA'

NEW YORK--()--Fitch Ratings has assigned a rating of 'AAA' to the following revenue bonds supported by the full faith and credit and unlimited taxing power of Gwinnett County, Georgia (the county):

-- $55,165,000 Development Authority of Gwinnett County, revenue refunding bonds (civic and cultural center expansion project), series 2010;

-- $169,065,000 Gwinnett County Water and Sewerage Authority, revenue refunding bonds, series 2010.

The Development Authority's revenue refunding bonds (civic and cultural center expansion project), series 2010 are being issued to refund for debt service savings and convert to a fixed rate the outstanding revenue bonds (civic and cultural center expansion project), series 2001. The bonds are scheduled for competitive sale on Nov. 9.

The Water and Sewerage Authority's revenue refunding bonds, series 2010, are being issued to refund for debt service savings all or a portion of the outstanding revenue bonds, series 2003B. The bonds are scheduled for competitive sale on Nov. 16.

In addition, Fitch affirms the 'AAA' rating on the following:

-- $63.5 million general obligation (GO) bonds;

-- $1.02 billion water and sewerage authority revenue bonds;

-- $98.9 million development authority revenue bonds.

The Rating Outlook is Stable.

Further, Fitch has withdrawn its 'AAA' rating for the following bond issued by the Gwinnett County Development Authority because it has been pre-refunded:

-- Revenue bonds (Gwinnett Recovered Materials Processing Facility Project), series 2008.

The correct rating history for the above bond is now reflected on Fitch's web site at 'www.fitchratings.com'.

RATING RATIONALE:

-- The ratings reflect the pledge of the county's full faith and credit and unlimited taxing power.

-- Financial operations have been guided by a conservative budget approach and prudent expenditure reductions and revenue enhancements which have preserved the general fund's strong reserve levels and financial flexibility.

-- Debt levels remain low and there are no plans for additional issuance at this time as the capital improvement plan is essentially fully funded from operating resources.

-- The regional economy remains well-positioned for growth over the long term, benefiting from solid in-migration patterns, a well-educated workforce, a large and diverse economy, and below-average living costs.

KEY RATING DRIVERS:

-- Management's commitment to the maintenance of reserve levels consistent with historical levels.

-- Resolution of a 2009 court ruling that will eliminate the county's current water supply from Lake Lanier by July 2012. The replacement of, or material alteration to, the county's current allocation from Lake Lanier could pressure future capital planning efforts and financial operations.

SECURITY:

The revenue bonds are secured by county payments under an interlocal agreement with the development authority and a lease agreement with the water and sewerage authority. The county's obligation under the agreements is absolute and unconditional and is secured by a pledge of its full faith and credit and unlimited taxing power. In addition, the water and sewerage authority revenue bonds are supported by a subordinate lien on the system's net revenue.

CREDIT SUMMARY:

Gwinnett County's financial position remains healthy, characterized by high reserve levels, ample balance sheet liquidity, and strong budgetary controls. During fiscal 2009 the general fund posted a $4.2 million surplus and the unreserved fund balance improved to $114.7 million or 27.2% of total spending. The county has established a formal reserve policy equal to two months or 17% of spending. The favorable operating results were achieved largely due to expenditure savings identified during a government-wide review of department budgets and operations and mid-year budget reconciliation process. To restore key services that had been cut, including public safety, the county commission approved a 21% increase in the millage rate to 13.25 mills in December 2009, marking the first time an increase has occurred since 1990. The tax bills for the increase in the 2009 millage rate (approximately $54 million in general fund revenue) were issued in March 2010, therefore generating a one-time source of revenue for fiscal 2010 which management applied to debt reduction, fund balance restoration, pay-as-you-go capital, and to fund payments in excess of the actuarially required contribution (ARC) for pension and OPEB. In fiscal 2010 management anticipates a surplus of approximately $28 million in the general fund. Management expects the fiscal 2011 budget will appropriate $15.8 million in fund balance in the worst case for pay-as-you-go capital. Management stated it is committed to maintaining reserves at their present level (closer to three months of spending) for the foreseeable future.

Gwinnett County is located approximately 25 miles northeast of downtown Atlanta. The county has experienced very strong population growth benefiting economic activity and job creation. However, employment levels have contracted more than 9% since 2007 with large losses noted in financial activities, construction, and retail trade. Unemployment in August 2010 was 9.4% compared to 9% in August 2009; however, the county's unemployment rate remains lower than the state and each of the large Atlanta-area counties. Long-term growth prospects are favorable, supported by the diversity of the economic base, strong in-migration patterns, low cost of living and doing business, availability of educated labor, proximity to multi-modal transportation infrastructure, and central location in the southeast region. Income levels remain slightly better than the state and the nation.

The bulk of the county's direct debt is supported by net revenues of the water and sewerage authority. Coverage is consistently well above 1.0 times (x); as a result, self-supporting credit is granted and tax-supported debt ratios are quite manageable, at less than 2% of market value and approximately $1,500 per capita on an overall basis. Tax-supported debt service totals $18.2 million in fiscal 2010, or a low 3.5% of budgeted general fund and debt service fund appropriations. Amortization of outstanding debt is rapid. The proposed refunding of the development authority bonds will eliminate the county's variable-rate exposure. Contributions for pension and OPEB total less than 10% of governmental fund spending, and have exceeded the ARC since fiscal 2009. The defined benefit pension plan is closed to new entrants in favor of a defined contribution plan, and the county's explicit subsidy for retiree health coverage is capped at specific monthly limits. The unfunded liabilities related to pension and OPEB approximate $400 million as of Jan. 1, 2010.

At $1.58 billion the 2010-2015 capital improvement program (CIP) has been scaled back by approximately $600 million from the five-year plan adopted last year. Water and sewer improvements total more than $700 million. The county plans to fund the CIP from operating revenues and receipts of a special purpose local option sales tax (SPLOST) extended by voter approval in 2008 through March 2014.

Fitch remains concerned regarding a 2009 court decision that will eliminate by July 2012 the county's current water supply from Lake Lanier unless congressional approval is obtained or a long-term, interstate water supply agreement is formulated to allow the water and sewerage authority to maintain the current water supply source. The ruling gives the county, as well as other interested parties, less than two years to resolve the matter. As such, Fitch will closely monitor the county's progress in addressing the court ruling and continue to evaluate the impact on the authority's and the county's overall credit profile.

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

Applicable Criteria and Related Research:

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

-- 'U.S. Local Government Tax-Supported Rating Criteria', 08 Oct. 2010.

Applicable Criteria and 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=564566

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Contacts

Fitch Inc.
Michael Rinaldi, +1-212-908-0833
Senior Director
One State Street
New York, N.Y. 10004
or
Leora Lipton
Analyst, +1-212-908-0507
or
Committee Chairperson
Ann Flynn, +1-212-908-0152
Senior Director
or
Media Relations
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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Contacts

Fitch Inc.
Michael Rinaldi, +1-212-908-0833
Senior Director
One State Street
New York, N.Y. 10004
or
Leora Lipton
Analyst, +1-212-908-0507
or
Committee Chairperson
Ann Flynn, +1-212-908-0152
Senior Director
or
Media Relations
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com