Fitch Rates King County, WA's 2011 LTGOs 'AA+'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to King County, Washington's limited tax general obligation (GO) refunding bonds:

--$25.6 million series 2011 'AA+'.

These bonds will be sold via negotiation during the week of July 25, 2011.

In addition, Fitch affirms the following bonds:

--$170.6 million in outstanding unlimited tax GO bonds at 'AAA';

--$1.4 billion in outstanding limited tax GO bonds at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Despite a history of economic cyclicality and current pressure on its property and employment markets, King County has a sound economic base due to its role as a regional economic center, above-average wealth indicators, strong taxable assessed valuation (TAV) per capita, and low taxpayer concentration.

--While general fund balances have declined significantly since their 2006 peak, they remain sound, and started to rebuild in fiscal 2010.

--The county's excellent management is evidenced by its adherence to strong, council-adopted financial management policies, and its low debt burden.

--General obligation bonds are property tax dependent in a state with restrictive property tax levy growth limits and recent significant TAV declines.

--The county continues to address its structural budgetary imbalance, although permanent solutions are still needed to close it fully.

KEY RATING DRIVERS:

--Resolution of the budgetary imbalance and restoration of general fund reserves more in line with historical trends.

--A resumption of growth in what historically has been a vibrant, diverse regional economy.

SECURITY:

The bonds are general obligations of the county, secured by an irrevocable full faith, credit, and resources pledge to levy an ad valorem tax sufficient (together with all other legally available monies) to pay debt service. The ad valorem tax pledge securing the limited tax GO bonds is constrained by property tax levy growth of 1% per year, plus new construction.

CREDIT SUMMARY:

The county economy is experiencing recessionary weakness and real estate decline. Following strong growth through 2009, TAV fell sharply by 11.6% in 2010 and 3.4% in 2011, and is projected to continue falling in 2012 (-0.6%) before starting to recover in 2013. Despite the downward pressure, TAV per capita is a high $171,000. Taxpayer concentration is very low, with the 10 largest property taxpayers constituting only 3.5% of TAV.

Since mid-2008, the county has lost 75,000 jobs. Nevertheless, the increasing diversification of the county's employment base has been an important buffer during this economic downturn, and some employment sectors have begun to grow again. At 7.9% (April 2011), the county unemployment rate is declining and remains lower than the state and national unemployment rates. Gradual job growth is forecast over the 2011-2013 period.

The county's financial operations benefit from strong management policies and practices, including the requirement for an unreserved general fund balance equal to at least 6% of estimated variable annual revenues (as defined by the county). The county has consistently maintained higher balances, but these have declined over the last four years. The fiscal 2009 unreserved general fund balance totaled $67.5 million, a still solid 10.4% of total spending, Fitch's preferred measurement of an entity's financial cushion. Nevertheless, this was a significant decline from the fiscal 2008 unreserved general fund balance of $81.2 million (12% of total spending).

Unaudited fiscal 2010 results indicate that the unreserved general fund balance has started to rebound, achieving $71.6 million at year-end (11.4% of total spending). Fitch notes, as a positive credit factor, that the county has consistently maintained an almost $16 million rainy day reserve fund since 2008, outside its unreserved general fund balance, thereby providing an additional financial cushion. Both the council and the executive remain committed to keeping the rainy day reserve fund intact for one-time events such as natural disasters.

The county's structural deficits are driven by expenditure growth outstripping revenue growth, the property tax growth cap (1% plus new construction), TAV declines, and unfunded mandates. The county closed a projected fiscal 2011 budget deficit of $59 million largely with ongoing solutions, and has reduced its projected $23 million fiscal 2012 shortfall to $9 million which it expects to address easily by continuing its program of implementing 3% annual efficiency improvements. This program of 3% annual efficiency reductions is also expected to address a significant portion of the current conservative forecast of a $42.6 million budget gap for fiscal 2013. The county will also benefit from recent state legislative changes which reduce its annual pension contributions going forward.

The county's debt burden remains low, largely the result of using cash funding instead of debt. Net direct debt is a low $651 per capita, or 0.4% of TAV. Including overlapping debt, the burden remains moderately low at $3,387 per capita, or 2% of TAV. The amortization rate is average at 51% in 10 years.

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, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

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

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546

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