Fitch Rates James City County, VA's Lease Revenue Bonds 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA+' rating to the following lease revenue bonds of James City County, Virginia (the county):

--$28 million Economic Development Authority of the County of James City, Virginia lease revenue bonds, series 2012.

Bond proceeds will be used to refund series 2003 lease revenue bonds for NPV savings and fund various school capital projects and a replacement fire station. The series 2012 leased project is the Lafayette High School, which has an estimated value of $30.7 million. The bonds will sell via competitive sale on August 21st.

In addition, Fitch affirms the following ratings:

--$59.2 million of outstanding general obligation bonds at 'AAA';

--$13.185 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2009 at 'AA+';

--$67.04 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2006 at 'AA;

--$17.6 million of outstanding Economic Development Authority of James City County lease revenue bonds series 2005 at 'AA'.

The Rating Outlook is stable.

SECURITY

The series 2012 lease revenue bonds are limited obligations of the Economic Development Authority of the County of James City, VA payable solely from payments to be made by the County to the trustee. Payments are subject to annual appropriation by the county board.

The general obligation bonds are secured by the county's pledge of its full faith and credit and its unlimited taxing power.

KEY RATING DRIVERS

SOUND FINANCIAL MANAGEMENT: James City County's financial condition is consistently well managed and benefits from positive financial operations, healthy reserves and consistent fiscal policies.

STABLE TAX BASE: The county receives around 65% of its revenues from property taxes. Taxable assessed values have exhibited modest but continued positive growth over the past five years.

FAVORABLE DEBT PROFILE: Overall debt levels are expected to remain moderately low due to the county's limited capital needs, commitment to pay-as-you-go capital funding, and rapid amortization

STABLE LOCAL ECONOMY: The local economy consists primarily of light manufacturing, services, and trade, the last reflecting the regional importance of tourism. Economic indicators are solid and above average and unemployment is below average.

APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA+' rating on the series 2012 and 2009 lease revenue bonds reflects the county's credit characteristics as well as appropriation risk. Lease provisions are solid and the leased assets are viewed as essential to county operations. Bondholders have a security interest in the leased assets.

REVENUE BOND RATING DISTINCTION: A rating of 'AA' is assigned to the series 2006 lease revenue bonds where the value of the underlying assets do not cover the par amount outstanding and a rating of 'AA' is assigned to the series 2005 lease revenue bonds where bondholders are not secured by a leasehold interest in essential governmental facilities.

CREDIT PROFILE

STABLE ECONOMY WITHIN HAMPTON ROADS REGION

James City County is located in southeastern Virginia, equidistant from Richmond and Norfolk, and has a 2010 population of 67,009, reflecting a high 3% average annual population growth since the most recent census. The county's economy is driven in part by tourism as the county is either home to or near a number of American heritage tourist attractions, such as Colonial Williamsburg, the Yorktown Battlefield, and the Jamestown Settlement. Retail, recreation and services accounts for over 35% of employment with recently expanded Busch Gardens amusement park, the county's largest employer, accounting for over 15% of employment. A light manufacturing presence has centered upon Anheuser-Busch InBev (senior unsecured rating of 'A' by Fitch), the county's largest taxpayer and sixth largest employer, and related industries. The New Town mixed-use development under construction, inclusive of a technology park associated with the College of William and Mary has the potential to further economic diversification. Wealth levels are high with per capita money income equal to 119% and 140% of the state and nation, respectively. The May 2012 unemployment rate of 4.6% is well below state and national averages of 5.5% and 7.9%, respectively, continuing a long-standing trend for the county.

Although tax base growth has slowed over the past four years, the county has not experienced any declines in valuation. Following the 2012 biennial assessment, taxable assessed value is estimated to decline 3.44% to $11.9 billion in fiscal 2013. Property tax revenues are the county's largest revenue source at over 65% followed by sales taxes (5.4%) other local taxes (6%) that include meals, lodging, business licenses and recordation taxes.

PRUDENT FINANCIAL PERFORMANCE

The county's financial position is strong, characterized by ample reserve and liquidity levels and supported by strong financial management. Fiscal years 2010 and 2011 ended with net operating surpluses of $2.3 million and $4 million respectively increasing the unreserved balance in fiscal 2010 to 21% and the unrestricted balance (the sum of assigned, unassigned and committed under GASB 54) in fiscal 2011 to 24.3% of spending. In fiscal 2010, county management prudently reduced expenditures to offset revenues declines. Despite an uptick in revenues in fiscal 2011 expenditures declined slightly year-over-year leading to a greater operating surplus.

POSITIVE RESULTS ANTICIPATED FOR FISCAL YEAR 2012

Preliminary fiscal 2012 results show a third consecutive year of a net operating surplus. Revenues and expenditures are projected to outperform the budget by 2.3% and 0.5% respectively. The estimated operating surplus of $4.6 million is expected to be added to the unassigned fund balance further strengthening the unrestricted balance to $43.77 million or a strong 26.9% of spending.

BALANCED FISCAL 2013 BUDGET

The fiscal 2013 adopted budget is balanced without a general fund balance appropriation and is 1.1% higher year-over-year. The property tax rate remains unchanged at a competitive rate of $0.77 per $100 of assessed value (AV). Fitch notes the budget does not include any furloughs, layoffs, or pay/benefit reductions to existing personnel, funds a sizable contribution to pay-as-you-go capital, and fully funds the actuarial requirement to the Virginia Retirement System (VRS) and pay-go other post-employment benefits (OPEB) liabilities. Given the county's historical financial performance, Fitch expects management to continue to maintain sound reserve levels and record favorable operating performance.

AFFORDABLE DEBT PROFILE

Overall debt levels are expected to remain moderately low given the county's comprehensive planning and debt affordability guidelines. Overall debt equals $3,333 per capita and 1.8% of market value, well below the county's policy of 3%. The rapid amortization of nearly 70% of principal within 10 years offsets high debt service as a percent of the general fund expenditures of 18.6%. The county's policy is to maintain debt service as a percentage of total general fund and school component unit revenues at 12% or below. However, the county was not in compliance with this policy in 2010 or 2011 but will be in 2012 and has projected to be in compliance over the next five years. The county's approximately $85 million fiscal year 2013 - 2018 capital improvement plan (CIP) is primarily debt financed ($53.2 million inclusive of the $20 million from the current issuance) and comprises mostly education related projects at $47 million.

The county participates in the state-wide VRS in a separate cost-sharing pool. The plan is adequately funded at 80% at the Fitch-assumed discount rate of 7%. The county regularly contributes its annual required contribution (ARC). For fiscal 2011 $4.68 million ARC equaled a modest 3% of spending and transfers out. Due to a new state mandate requiring local governments to provide a 5% salary increase to employees to offset a new 5% employee retirement plan contribution, the county's costs are expected to increase $1 million in fiscal 2013. Fitch believes that the county will be able to accommodate the increased costs without undue financial pressure given the high level of flexibility incorporated into its budget. The county's OPEB ARC accounts for a low 0.03% of spending.

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, 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:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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Contacts

Fitch Ratings
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Evette Caze, +1-212-908-0376
Director
Fitch, Inc.
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New York NY 10004
or
Secondary Analyst
Kevin Dolan, +1-212-908-0538
Director
or
Committee Chairperson
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or
Media Relations
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elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Evette Caze, +1-212-908-0376
Director
Fitch, Inc.
One State Street Plaza
New York NY 10004
or
Secondary Analyst
Kevin Dolan, +1-212-908-0538
Director
or
Committee Chairperson
Kathryn Masterson, +1-415-732-5622
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com