NEW YORK--()--Fitch Ratings has assigned an 'AA' rating to the following County of Brunswick, North Carolina (the county) general obligation bonds (GOs):
--$15.5 million refunding GOs, series 2013A;
--$3.6 million refunding GOs, series 2013B.
Proceeds will be used to refund the series 2005A, 2005B, 2007A, and 2007B GOs for debt service savings. The negotiated sale is scheduled for April 3, 2013.
In addition, Fitch affirms the ratings on the following county obligations:
--$48.2 million county GO bonds at 'AA';
--$39.4 million Brunswick County Leasing Corporation (NC) limited obligation bonds (LOBs)/certificates of participation (COPs) at 'AA-'.
The Rating Outlook is Stable.
The GO bonds are backed by the county's full faith, credit, and unlimited taxing power.
The COPs and LOBs are secured by lease payments subject to annual appropriation by the county. Essential government assets are subject to a lien.
KEY RATING DRIVERS
HEALTHY FINANCIAL PROFILE: Financial operations are characterized by a conservative approach to budget development, timely revenue and spending adjustments, and steady compliance with reserve policies.
LOW DEBT BURDEN; AFFORDABLE CARRYING COSTS: The debt burden is low, debt servicing costs remain affordable, and outstanding debt is rapidly amortized. Future borrowing needs, as outlined in the capital improvement plan (CIP), should not impact debt ratios.
SEASONAL ECONOMIC BASE: The tourism sector remains a significant economic driver, vulnerable to economic cycles and contributing to seasonal employment fluctuations.
APPROPRIATION LIEN ON ESSENTIAL ASSETS: The 'AA-' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments to be made by the county to the trustee, the essential nature of the respective leased assets, and the general creditworthiness of Brunswick County.
The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Brunswick County is a primarily residential community located in southeastern North Carolina along the Atlantic Ocean. The county's population continues to rise at a rapid rate, with growth of 43% from 1990-2000, followed by additional growth of 47% from 2000-2010. Estimated 2012 population figures show a further increase in population, reaching 110,097 residents.
STRONG FISCAL MANAGEMENT
Brunswick County has a solid history of conservative budgeting, and its strong reserve levels are evidence of prudent financial management. The general fund unrestricted fund balance has remained above the county's 20% policy since at least fiscal 1996. Fiscal year 2012 closed with a $2.4 million general fund net surplus (equal to 1.2% of fiscal 2012 spending), despite a $2.4 million budgeted use of fund balance. The positive budget variance was achieved through departmental savings, the elimination of positions through attrition, and conservative budgeting of revenues. The unrestricted fund balance totaled $49.2 million or an ample 24.2% of spending ($203.6 million) at fiscal year-end 2012. In addition, Fitch considers the county's reserve for state statute, which is primarily to offset accounts receivable, a source of additional financial flexibility totaling $6.8 million or an additional 3.4% of spending in fiscal 2012.
The 2013 budget is balanced with a $1.2 million appropriation of general fund balance. However, management expects to end the year with a surplus similar to the prior fiscal year through debt service savings due to a refunding in fiscal 2012 and $1 million in savings through contract changes to provide meals to seniors. Given the county's historical conservative budgets, Fitch believes this expectation is reasonable.
Property tax revenues are the county's largest revenue source at 68%. The county's tax base exhibited modest growth in fiscal 2010 and 2011, followed by a 27% decline for fiscal year 2012 due to the quadrennial revaluation. The county council adjusted its tax rate to the revenue neutral rate. Despite the steep rate increase, the county continues to maintain one of the lowest tax rates in the state at $0.4425 per $100 of assessed value (AV), well below the statutory cap of $1.50. Tax collections were 94.73% and 95.04% which Fitch considers relatively weak. However, this risk is offset by the county's revenue forecasting and strong reserves. Management anticipates that AV will be flat in fiscal 2013, with growth of 0.8% beginning in fiscal 2014.
MAINLY RESIDENTIAL COASTAL COMMUNITY
Brunswick County is rural and its economy is limited and dependent on tourism, leaving it vulnerable to economic cycles and contributing to seasonal employment fluctuations. The county's employment base has begun to expand in recent years in the healthcare and utility sectors with the Brunswick Community Hospital, Brunswick Nuclear Power Plant, and DAK Americas. The county's unemployment rate remains high at 11.3% as of December 2012, which is above both the state and national rates at 9.5% and 7.6% respectively. Income levels remain below state and national averages. There is no taxbase concentration with the 10 largest taxpayers accounting for just 7.7% of AV.
FAVORABLE DEBT PROFILE
Overall debt levels are low at $975 per capita and 0.6% of market value, and amortization is rapid with 89% of tax supported debt retired in 10 years. The five-year CIP totals $204 million and includes an approximate $83.7 million in additional debt to fund a landfill expansion, wastewater capital projects, school construction projects, park improvements, and construction of a senior center.
Pension and other post-employment benefits (OPEB) continue to be well managed. The county contributes to three retirement plans including the Local Government Employees' Retirement System (LGERS). The county's fiscal 2012 carrying costs for debt service, pensions, and OPEB reflect a manageable 13% of governmental (net capital) fund spending.
For OPEB, the county pays its obligation on a pay-go basis. For fiscal 2012 the annual contribution represented 0.5% of spending.
STRONG INCENTIVE TO APPROPRIATE
The COPs and LOBs are secured by lease payments made by the county pursuant to a deed of trust and a lien on the mortgaged property subject to permitted encumbrances. Mortgaged property conveyed under the deed of trust includes two schools, a courthouse, and several detention center buildings whose essentiality provides sufficient incentive to appropriate.
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, and the 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