Fitch Affirms Stafford County, VA's GOs at 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken the following rating actions as part of its continuous surveillance efforts:

--$257.2 million general obligation (GO) bonds affirmed at 'AA';

--$42.1 million economic development authority (EDA) lease revenue bonds, series 2008 affirmed at 'AA-'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The county economy continues to benefit from its proximity to Washington, D.C. as well as its own expanding economic base.

--Financial performance has strengthened in recent years with a return to structural balance and increasing reserve levels despite tax base declines and dependence on economically sensitive revenues.

--Debt levels are moderate and are expected to remain stable given the county's stringent debt policies and manageable capital needs.

--The 'AA-' rating on the lease revenue bonds reflects the county's general credit characteristics as well as annual appropriation risk, which is largely offset by the essential nature of the leased assets.

KEY RATING DRIVERS:

--Sustained financial flexibility, including a continued demonstration of conservative budgeting and expenditure controls, would be viewed favorably.

--The direction of the tax base will play an important role in the direction of the county's credit profile.

--Economic growth is expected to continue at a measured pace, allowing management to address infrastructure expansion and renewal in a timely manner without undue fiscal strain.

SECURITY:

The GO bonds are secured by the full faith, credit and taxing power of the county.

The lease revenue bonds are limited obligations of the Economic Development Authority of Stafford County payable solely from payments made by the county pursuant to the financing lease, dated as of Feb. 1, 2008 between the county and the authority. Lease payments are subject to annual appropriation.

CREDIT SUMMARY:

Stafford County, located 25 miles south of the Washington, D.C. beltway, continues to benefit from its proximity to the national capital as well as its own expanding employment base. Quantico Marine Corps Base, partially located within the county, provides long-term stability to the area economy and is in the process of expanding due to national base realignment and closure (BRAC) legislation. Health care, insurance and higher education add a measure of diversity to the local employment base. The unemployment rate has remained relatively stable and low compared to the national average in the past year while wealth levels are well above average. The area is experiencing pressure from the real estate downturn with over a 23% decrease in taxable assessed real property value for calendar year 2010. Foreclosures remain low, although delinquencies are close to the national average, according to data provided to Fitch.

Financial operations have improved in recent years. After experiencing deficits earlier in the decade, the county returned to structural balance in fiscal 2008. Unaudited fiscal 2010 results show a moderate $1.9 million surplus. The unreserved fund balance remains sound at approximately 15% of spending for fiscal 2010 and the fiscal 2011 budget is balanced with a $0.5 million surplus. The county has adopted slightly more stringent financial and debt policies in 2010 including the creation of a revenue stabilization fund and a capital projects reserve. Fitch views the implementation and adherence to these policies favorably.

Debt levels are moderate. The county's fiscal 2011-2014 capital improvement plan (CIP) totals $192.5 million. Schools account for 37% of total needs, followed by transportation, parks and recreation and public works. The plan is 73% debt funded including $73.8 million in anticipated county debt and $67.3 million for schools. The county anticipates a currently undetermined amount of GO issuance in spring 2011; there is currently $99 million of authorized but unissued GO debt. At least 1% of general fund expenditures are set aside for pay-go capital, pursuant to county policy.

LEASE PROVISIONS:

Under a lease-leaseback arrangement, the county leases projects including a courthouse, radio communications system and a library to the authority, which leases them back to the county. The county makes basic rent payments equal to debt service directly to the trustee as assignee of the authority. The payments are subject to appropriation. The authority assigns its rights under the financing lease to the trustee, including its interest in the financing lease and the leased project and its right to receive payments under the financing lease. Under the leasehold deed of trust and security agreement, the authority grants to the trustee for the benefit of bondholders a security interest in the leased project. Fitch believes that the lien and security interest in predominantly essential leased projects provides sufficient incentive for the county to appropriate the necessary funds.

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, LoanPerformance, Inc. and IHS Global Insight.

Applicable Criteria and Related Research:

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

'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

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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