NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to the following Arlington County, Virginia (the county) general obligation (GO) bonds:
--$102.7 million GO refunding bonds series 2012A;
--$4.5 million taxable GO refunding bonds, series 2012B.
The bonds are expected to sell via negotiation on Feb. 7th. Proceeds will refund certain outstanding GO bonds.
In addition, Fitch affirms the following rating of the county:
--$815.3 million of outstanding GO bonds at 'AAA'.
In addition, Fitch affirms the following rating of the Arlington County Industrial Development Authority:
--$36.5 million of outstanding lease revenue bonds, series 2004 at 'AA+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
OUTSTANDING FINANCIAL PERFORMANCE: Conservative budgeting, timely tax and fee increases, and closely monitored expenditure controls consistently produce surplus operating results leading to solid reserve levels and liquidity.
EXCEPTIONALLY VIBRANT EMPLOYMENT BASE: The significant presence of the federal government serves to insulate the region from economic downturns and attracts high-wage employment opportunities from information technology, aerospace, defense, and consulting contractors. Very low unemployment, superior wealth levels, and one of the most highly educated labor forces in the nation underscore the economy.
WELL-MANAGED LONG-TERM OBLIGATIONS: Debt levels are moderate and expected to remain so given prudent planning and adherence to conservative debt policies. The county continues to fully fund obligations related to pension and other post-retirement benefits (OPEB).
APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA+' rating on the Arlington County Industrial Development Authority lease revenue bonds incorporates the general creditworthiness of the county and its obligation to make lease rental payments sufficient to pay debt service, subject to annual appropriation by the county board. The rating further reflects the sound lease provisions and essentiality of the leased assets.
--The GO bonds are general obligations of Arlington County for which the full faith and credit and unlimited taxing power of the county are pledged.
--The lease revenue bonds issued by the Arlington County Industrial Development Authority are limited obligations of the authority payable solely from lease payments to be made by the county to the trustee, subject to annual appropriation by the county board. Leased assets include essential county facilities.
Arlington County, located at the center of the Washington D.C. metro area, has consistently exhibited very strong economic characteristics. The presence of the federal government remains key to the region's overall stability, attracting a large number of private sector contractors. A healthy retail base, government employers outside the defense sector, and a significant tourism component add breadth to the county's economy. Job relocation outside of the county and increased vacancies associated with military base realignment and closure are anticipated through 2013 but Fitch continues to believe the county will be able to absorb these losses over time given the breadth and expansiveness of its economy.
The high-paying employment base is supported by a local workforce that is among the most educated and highly skilled in the nation. Wealth indicators are very strong and income growth rates measure favorably when compared to the region and nation. Unemployment has returned to its historically low rates, at 3.3% in November 2011.
The county's tax base has recovered since the recession, with vigorous 6.1% growth in calendar year 2010 and a 6.6% real property gain in calendar year 2011. The county incorporates 3% annual tax base growth into its long-range plans, which Fitch believes is sustainable.
The county's financial profile remains sound and well managed. The county's fiscal 2011 unrestricted fund balance (equal to the sum of the committed, assigned, and unassigned fund balances) was a sound 16.4% of expenditures and transfers out. The committed fund balance includes the county's operating reserve, which may only be used to meet critical and unanticipated spending needs. The county increased this reserve to 5% of expenditures in fiscal 2011, achieving its goal ahead of schedule. Fitch expects a certain amount of variability in the county's assigned portion of the fund balance as a result of expenditures associated with pay-go capital, affordable housing, and budget contingencies.
The fiscal 2012 general fund budget represents a 5.1% increase from that of the preceding year. The employee compensation package has been strengthened and pension and OPEB required contributions are fully funded. The budget does not increase the county's regionally low tax rate. Year-to-date revenues and collections are reported by the county to be within budgeted parameters.
The recent tax base growth has aided the county in closing a gap of around $13 million as it prepares its fiscal 2013 budget. Management is attempting to refine the major cost drivers for the fiscal 2014 budget, which currently has a shortfall of $15 million-$20 million. Fitch believes that the county will ultimately eliminate the gap, maintaining its commitment to strong financial management.
SOUND DEBT PROFILE
Formally adopted conservative debt management guidelines that include a detailed debt capacity analysis serve as the financial framework for the county's capital initiatives. Plans to issue approximately $111 million in GO bonds this summer to fund a portion of the $1.2 billion capital improvement plan (CIP) through 2016 are in line with prior years' issuance.
Fitch expects the county's moderate debt ratios will remain stable. The moderately high debt per capita of $4,304 is offset by the strong economic characteristics of county residents and businesses, as evidenced by the low debt as a percent of market value ratio of about 1.4%. Rapid amortization of 69.5% of principal retired within 10 years enhances the debt profile.
The county's debt structure contains minimal exposure to variable-rate debt and does not include exposure to derivatives. Long-term liabilities are well-managed, with the county's pension plan well-funded and required OPEB contributions budgeted in full each year.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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 the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria