NEW YORK--()--Fitch Ratings has assigned a rating of 'AAA' to the following Greenville County, South Carolina (the county) general obligation (GO) bonds:
--$25,000,000 refunding bonds, taxable series 2013A and series 2013B.
The bonds are scheduled for competitive sale on March 19. Proceeds will advance refund a portion of the county's outstanding GO bonds, series 2004A, 2004B, 2005A and 2005B, resulting in annual debt service savings without extending final maturities.
In addition, Fitch affirms the following ratings:
--Approximately $60 million of outstanding GO bonds at 'AAA'; --Approximately $8 million of outstanding refunding certificates of participation (COPs) University Center Public Facilities Corp. (SC) (university center project) at 'AA+'; --Approximately $44.4 million of outstanding COPs (hospitality tax) at 'AA-'.
The Rating Outlook is Stable.
The GO bonds are secured by the full faith and credit and unlimited taxing power of the county.
The university center COPs are payable from lease rental payments by the county, subject to annual appropriation. Rental payments are payable from any legally available source of the county. Bondholders are additionally secured by a surety-funded debt service reserve fund (DSRF) equal to 50% of maximum annual debt service (MADS), and a leasehold interest in facilities providing educational and laboratory space for Greenville Technical College and other regional institutions of higher learning.
The hospitality tax COPs are payable from lease rental payments by the county, subject to annual appropriation. Rental payments are made solely from the proceeds of a 2% hospitality tax and, if these are not sufficient, the county's share of the state accommodations tax. Bondholders are additionally secured by a cash-funded DSRF equal to 50% of MADS and a leasehold interest in certain tourism-related properties.
KEY RATING DRIVERS
STRONG FISCAL OVERSIGHT: Greenville County's 'AAA' GO rating is supported by its exceptional financial management, consistent surplus operating results, sizable reserve levels and healthy balance sheet liquidity.
DIVERSE AND BROAD ECONOMIC BASE: The county serves as an economic anchor for its region. Diversifying from its former textile manufacturing base, the local economy contains a broad mix of business services, healthcare, government, tourism and educational activities.
MODEST DEBT LOAD: Direct and overlapping debt levels are moderate while direct debt is rapidly amortized. Capital needs are very manageable and additional debt plans are not expected to alter the county's overall debt structured.
APPROPRIATION RISK: The COPs ratings reflect the risk of annual appropriation. The one notch difference between the GO and COPs ratings for the university center project COPs reflect the leasehold interests in essential facilities for the county.
LOWER RATING ON HOSPITALITY TAX COPs: The three-notch difference between the GO and hospitality tax COPs incorporates the narrow and potentially volatile repayment source for the COPs. Heightened appropriation risk due to the non-essential nature of leased recreational facilities is somewhat offset by restrictions on use of the revenues dedicated to COP repayment.
WEAKENING OF RESERVE BALANCES: Poor financial performance leading to substantial drawdown of reserves could threaten the GO and COPs ratings.
REDUCED HOSPITALITY TAX COVERAGE: Large declines in hospitality tax revenues resulting in significant reductions in debt service coverage could lead to negative rating action for the hospitality tax COPs.
The county encompasses 792 square miles in the northwestern Piedmont section of South Carolina along the North Carolina border. The city of Greenville is the county seat and sixth largest city in the state. The county has experienced robust population growth over the past two decades, increasing by over 40% between 1990 and 2010 to over 450,000. Population growth continues at a brisk clip, expanding by an estimated 2.23% in 2011.
ECONOMIC ANCHOR FOR THE REGION
The county benefits from its location along Interstate 85 between Charlotte, North Carolina and Atlanta, Georgia as it has become the economic center for a nine county region. The region's economy has diversified from its former manufacturing base to one with a broad mix of services and products. Leading sectors of economic activity include professional and business services, trade, healthcare, education, government and tourism. The two top employers are the county school district and Greenville Hospital System (revenue bonds rated 'AA-' with Stable Outlook), one of the largest health systems in the state, with combined employment of about 20,000.
EMPLOYMENT GROWTH STALLED IN 2012
County employment trends have been uneven in recent years. Following a recession-induced 5% drop in 2009, employment registered two consecutive years of modest growth. However, growth stalled in 2012 as jobs were virtually even with 2011, due in part to a series of layoffs announced during the second half of 2011 and 2012. Fitch believes that recent spikes in capital investments and building permit valuations are positive signs which could lead to an eventual resumption in job gains. Despite the static job trends, the county's December 2012 unemployment rate of 6.8% was lower than both the state (8.8%) and national (7.6%) averages.
County wealth indices exceed state benchmarks but fall short of the national averages. Per capita income for 2011 accounts for 111% of state norms but only 95% of the national average.
MANUFACTURING STILL AN IMPORTANT ECONOMIC DRIVER
Manufacturing remains an important component of the local economy, accounting for approximately 13% of Greenville metropolitan statistical area (MSA) employment. Branching out from its traditional focus on textiles and non-durable goods, manufactured products include industrial robots, electronic components, automotive products, gas turbines and pharmaceuticals. Major manufacturers include Michelin North America, whose headquarters are located within the county and General Electric, which operates the largest gas turbine manufacturing plant in the world. Following an 11% decline in employment between 2008 and 2010, manufacturing jobs in the MSA have inched up over the past two years but remain well-below pre-recession levels.
CONSISTENT TAXABLE VALUE GROWTH
Assessed values have proven resilient, increasing every year since at least fiscal 2003. However, the pace of growth slowed in fiscal 2012 to less than 1%. Management projects taxable values to maintain a modest growth trend, which Fitch believes is reasonable given the slight uptick in housing values over last year, according to Zillow.com. The tax base is diverse as the top ten taxpayers represent a modest 4.67% of total assessments. Tax collections are exceptionally strong averaging 96% and 101% on a current and total basis, respectively. Total county millage rates have remained at 47.3 mills for the past three fiscal years through fiscal 2013.
EXCELLENT FINANCIAL MANAGEMENT
The county's finances are excellently managed, characterized by very strong reserves, prudent budgeting and wide levels of liquidity. Fiscal 2012 general fund operations realized a $1.8 million net surplus bringing general fund balance up to $52 million or 41% of expenditures and transfers out. Nearly all of fund balance is unrestricted. The fiscal 2012 unassigned general fund balance of $48.6 million or 38% of revenues exceeds the county's unassigned fund balance target of 25% to 35% of revenues.
Property taxes are the largest revenue source providing approximately 60% of general fund revenues. Property tax revenues have generally increased in conjunction with the expansion of the tax base and account for the bulk of overall revenue growth over the past five years. Public safety and law enforcement services combined represent more than half of general fund spending, increasing moderately at a 2.4% average annual rate over the past four fiscal years. Management has exercised strict cost control, limiting spending to an average increase of 2% annually since fiscal 2008.
The county budgets conservatively with actual results generally outperforming budget. Management's policy is to build in a contingency equal to 2% of estimated revenues for emergencies. The fiscal 2013 general fund budget proposes a modest $434,000 drawdown of reserves although recent projections show a year-end $27,000 net surplus.
HIGH LEVELS OF LIQUIDITY
The county has ample liquidity with fiscal 2012 unrestricted general fund cash equaling almost 10x liabilities. The sizable cash balance covers operations until the major portion of property taxes are received in January and February. County projections for general fund operations through fiscal 2015 call for gradual increases in both total and unassigned general fund balance.
MANAGEABLE DEBT LOAD
Direct debt levels are relatively low at 0.4% of market value; however, when overlapping debt of the Greenville County School District and underlying municipalities are factored in, total debt burden rises to a moderate 3.6%. Direct debt is rapidly amortized with approximately 75% of principal retired within ten years and substantial issuing margin remains under the legal debt limit. There are no firm plans for significant additional issuance although a capital project is under consideration in the upcoming budget, which could involve bonding in the $20 million range.
RETIREMENT COSTS DO NOT PRESSURE FINANCES
The county provides pension benefits to its employees through the South Carolina Retirement System (SCRS) or the South Carolina Police Officer Retirement System (PORS), both of which are state administered cost-sharing multiple employer retirement systems. Plan participants pay 100% of their share of the annual actuarially required contribution (ARC). Funding for SCRS and PORS at 64% and 69%, respectively, utilizing Fitch's more conservative 7% rate of return, is less than what Fitch considers adequate so contribution requirements are likely to rise over time. The county's fiscal profile is capable of accommodating some growth in pension costs as fiscal 2012 county pension contributions account for an affordable 5.2% of general government spending (less capital).
Other post-employment benefits (OPEB) including retiree medical care are provided to retirees through one of three county-subsidized medical plans. The county's OPEB costs are funded on a pay-go basis. The OPEB's unfunded actuarial accrued liability (UAAL) as of July 2010 is very modest, representing less than 0.1% of the county's current market value.
ADEQUATE HOSPITALITY COPS COVERAGE
The hospitality tax has been collected pursuant to county ordinance since April 1, 2007 at a uniform rate of 2% on the sales of prepared meals and beverages, including alcoholic beverages, beer, and wine, at any business with a fixed place of operation in the unincorporated county. Approximately 70% of the county's total population resides within the unincorporated area and roughly 700 establishments there remit the hospitality tax to the county on a monthly, quarterly, or annual basis as determined by the average monthly tax collection. The hospitality tax ordinance terminates on the later of Dec. 12, 2026 or the payment of the last maturing obligation being paid from the hospitality tax.
Hospitality taxes have been steady through the recession, suffering its only drop-off in collections in fiscal 2010, and a relatively minor 0.6% annual loss. Collections for fiscals 2011 and 2012 have rebounded moderately with year over year increases of 2.9% and 2.8%, respectively. Fiscal 2012 hospitality tax revenues provide debt service coverage of 1.82x. Also available to pay debt service are accommodations tax revenues which totaled about 10% of hospitality tax collections in fiscal 2012. Debt service is relatively level through 2028. Seven month year-to-date collections of the hospitality tax in fiscal 2013 are up 8% over same period collections in fiscal 2012.
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. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria