Fitch Rates Harford County, MD's GO Bonds 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to the following Harford County, Maryland bonds:

--$40 million consolidated public improvement bonds, series 2013A;

--$76.93 million refunding bonds, series 2013B.

The bonds are scheduled to sell competitively on February 19th. The proceeds of the new money bonds will be used to fund certain capital improvements for general county projects and water and sewer projects. The refunding bonds will refund certain maturities of the series 2005 and 2007 bonds for debt service savings.

In addition, Fitch affirms the following ratings:

--$423.4 million in outstanding general obligation bonds (GOs) at 'AAA'.

The Rating Outlook is stable.

SECURITY

The bonds are general obligations of Harford County, MD, the payment of which the full faith and credit and unlimited taxing power of the county are pledged.

KEY RATING DRIVERS

SATISFACTORY FINANCIAL PROFILE: Financial operations are characterized by a conservative approach to budget development, timely spending adjustments, and steady compliance with the county's internal reserve policy equal to 5% of spending.

ECONOMY ANCHORED BY MILITARY PRESENCE: Historically low unemployment and mixed income indicators reflect the high quality of the local labor force, the county's favorable location along the Baltimore-Washington, D.C. corridor, and the extensive presence of the federal government and its contractors.

ABERDEEN PROVING GROUND (APG) EXPANSION: The continued APG expansion should prove beneficial over the intermediate to long term, particularly with respect to attracting higher-wage employment opportunities.

LOW DEBT BURDEN: Harford County continues to adhere to good debt management guidelines, which have allowed overall debt levels to remain moderate to low. Future needs, according to the capital improvement plan, are affordable and should not negatively affect debt ratios. Debt amortization is moderate

RATING SENSITIVITIES

FUTURE REDUCTION IN ACTIVITY AT APG: A reduction of mission at APG would negatively affect the county's economy and potentially put downward pressure on the rating.

CREDIT PROFILE

The County is located 20 miles north of the City of Baltimore and abuts the Chesapeake Bay to the east. Three interstate highways (I-95, U.S. Route 40 and U.S. Route 1) and three rail lines (Amtrak, CSX and Maryland Rail Commuter) connect residents and businesses in the county with the U.S. Eastern Seaboard. The county's estimated 2011 population of 246,489 represents a 13% increase from the 2000 U.S. Census figures.

STRONG RESERVE LEVELS

Fiscal 2012 ended with a general fund net surplus of $1.9 million against a total spending plan of approximately $470 million (0.39%). The surplus marks the third straight fiscal year of positive results. During this period, the county's unreserved fund balance has improved from $57 million or 12% of spending to $95.3 million or 19.5% of spending.

The county adopted a budget for fiscal 2013 that was balanced with a $20.4 million fund balance appropriation. The budget includes the funding of a $20 million emergency operation and 911 call center as well as several other capital projects. Management reports that year-to-date operations are positive which is expected to reduce the amount of fund balance used.

Property and income taxes produced approximately 54% and 38%, respectively, of fiscal 2012 general fund revenue. Property tax revenues declined in fiscal 2012, reflecting a decline in taxable assessed value; however collections remain very strong in excess of 99%. Due to improvement in employment and the economy, income tax revenues increased 8% between 2011 and 2012. Year-to-date fiscal 2013 collections are 2.7% more than fiscal 2012 actuals. The county last increased the income tax rate to 3.06% in 2001, which remains below the 3.2% maximum rate allowed by state law.

GROWING ECONOMIC BASE ANCHORED BY MILITARY PRESENCE

Aberdeen Proving Ground (APG), located in Harford County, is a 72,000-acre complex historically operated as a test and evaluation facility for the U.S. Army. APG has evolved considerably following the Base Realignment and Closure Act of 2005 (BRAC). The post is considered a 'megabase' by the U.S. Army, and a leader in science and technology, cyber-security, chemical and biological defense, and medical research for the joint services.

APG is by far the single most influential enterprise in the local economy. APG accounts for approximately $1.8 billion in economic activity within the state of Maryland and $1.1 billion within Harford and neighboring Cecil County, and there is approximately 24,000 military and civilian jobs on and off post (nearly double the figure prior to BRAC). According to the county, the number of jobs at APG is expected to reach 32,000 by 2015. The potential for additional private sector and higher wage employment opportunities in support of APG's expansion is viewed favorably by Fitch. A number of office and technology business parks are already under construction in both in the county and on APG.

The county's manufacturing, distribution and retail sectors remain strong and continue to expand. During 2012 JC Penney opened a new department store, which was a $9 million capital investment that added 101 new jobs. Cytec, a laminated materials manufacturing company, expanded its presence in the county with an $8 million capital investment and 6 new jobs.

Harford County's rate of unemployment as of November 2012 was 6.5% compared to 6.4% in Maryland and 7.4% nationally. The county's wealth levels are mixed, with per capita income equal to 97% of the state average and 124% of national average.

TAX BASE EXPECTED TO STABILIZE WITHIN THE NEAR TERM

Like all Maryland municipalities, the county benefits from a triennial assessment practice and a homestead credit which smoothes annual volatility in tax base performance. The county's current homestead percentage is 105%, which means that assessments on certain owner-occupied residential property may not increase by more than 5% in any given year (growth in excess of 5% is credited, or 'banked', and can be used to offset future taxbase declines).

Despite pressure on property values, the county's taxable assessed value (TAV) continued to expand through fiscal 2011 due to the use of banked homestead tax credits. TAV declined by 4.4% for fiscal 2012 and 1.7% for fiscal 2013. Fitch notes that the county has the ability to adjust its property tax rate to temper the financial impact of future TAV declines. Harford County has not increased the real property tax rate since 1982, and rates are competitive compared to neighboring counties.

AVERAGE DEBT PROFILE

The county's long-established development zone has directed utility and other necessary infrastructure to well-defined zones, limiting expensive extensions to more rural areas, and the county has a history of solid pay-as-you-go capital financing. Harford County's debt ratios are therefore expected to remain moderately low in spite of growth related needs fueled by the APG expansion. With this issue, overall debt totals approximately $2,049 per capita and 1.7% of market value. Payout is moderate with just 61% retired within 10 years. Debt service expenditures for fiscal 2012 accounted for an average 9.3% of spending.

The capital improvement plan totals $597.6 million for fiscal 2013 - 2018. Approximately $187 million will be funded with GO debt, which is not expected to impact debt ratios given the moderate rate of principal amortization. Pay-go general fund spending accounts for $302 million of the plan. The majority of the projects included in the plan are related to education.

Long-term liabilities related to employment benefits are not expected to pressure future operations. The county provides pension benefits to its employees through three plans: the State Retirement and Pension System of Maryland, the Volunteer Length of Service Award Program for volunteer fire and rescue squads' personnel, and the Sheriff's Office Pension Plan. The county annually contributes 100% of the annual required contribution (ARC). The county's 2012 contribution equaled a low 3.6% of total governmental fund spending.

As of the last actuarial study, the Volunteer Length of Service Award Program (LOSAP) and the Sheriff's Office Pension Plan maintained funded ratios of 73% and 65%, respectively, after adjusting the rate of return from 6% to 7% for the LOSAP and from 7.5% to 7% for the Sheriff's Office Pension Plan. The county also provides healthcare benefits and OPEB to its retirees. The county fully funded its OPEB ARC for fiscal 2012, which accounted for 2.1% of governmental fund spending. As of July 1, 2011, the UAAL associated with OPEB totaled $122 million or less than 1% of market value.

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, Maryland Department of Business & Economic Development.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contacts

Fitch Ratings
Primary Analyst
Evette Caze, +1-212-908-0376
Director
Fitch Ratings, Inc.
One State Street Plaza
New York NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Evette Caze, +1-212-908-0376
Director
Fitch Ratings, Inc.
One State Street Plaza
New York NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com