Fitch Affirms Leesburg, VA's GOs 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following Leesburg, VA (the town) ratings:

--$59.9 million general obligation (GO) bonds at 'AA+';

--$46.6 million GO utility bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by the town's full faith and credit and unlimited ad valorem taxing ability.

KEY RATING DRIVERS

AMPLE RESERVES AND LIQUIDITY: Strong financial management has produced high liquidity levels and healthy reserves well above the conservative policy level.

STRONG SOCIO-ECONOMIC INDICATORS: Wealth levels exceed the state and national levels. Unemployment performed well throughout the recession and continues to outperform the state and nation.

MODERATE DEBT LEVELS: Limited intermediate-term debt issuance will allow the town to maintain the current manageable debt position.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the town's strong financial profile. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Located in Loudoun County in northern Virginia, Leesburg has a 2012 population of 45,936 and continues to experience rapid growth, with the population rising 62.3% since 2000. The town lies 20 miles from Washington-Dulles Airport and 35 miles from the nation's capitol.

WEALTHY TAX BASE LOCATED WITHIN STRONG D.C. AREA ECONOMY

The town is primarily a residential bedroom community, located at the confluence of state highway 7 and interstate 15, making it highly accessible to the nearby job markets of Loudoun County, Fairfax County, Tyson's Corner, and Washington D.C. With a well-educated workforce and close proximity to vibrant labor markets, the town has maintained low unemployment rates and high wealth indicators. As of April 2013, the town's unemployment rate of 3.1% was well below that of the state's 5% and nation's 7.1%. Median household income is approximately 60% to 90% higher than that of the state and nation, respectively, according to census data. Per capita income levels for the town are also high.

STRONG FISCAL POSITION

Leesburg's reserve levels remain ample despite recent draws. In fiscal 2012, the town decided to repay the 2007 series of bond anticipation notes (BANs) with $5 million of restricted cash from the general fund. While this repayment somewhat lowered liquidity and general fund balance, Fitch views this debt reduction positively.

Even with the BAN repayment, the town ended fiscal 2012 with an unrestricted fund balance totaling $16.2 million or a sound 30.9% of general fund spending. The town's formal fund balance policy requires the unassigned fund balance to account for at least 15% of spending. The general fund balance sheet is highly liquid with cash and investments well over four times total liabilities.

The town adopted a balanced budget for fiscal 2013; however, management is currently forecasting a deficit of $1.7 million at year-end due to one-time capital expenditures for asset replacement and repair projects, which would lower the unrestricted fund balance to $14.5 million or a still ample 29.3% of spending.

BALANCED FISCAL 2014 BUDGET

The adopted fiscal 2014 budget increases spending by 3.3% or $1.7 million over the fiscal 2013 budget. The budget funds a $1.5 million contribution to fund balance, while lowering the property tax rate by 1.5% to 19.2 cents per $100 of assessed valuation (AV). The town's overall tax rate, inclusive of the county rate, is considered somewhat above-average within the region.

Non-property taxes (including sales, meals, business, and cigarette taxes) are projected to increase $1 million or 8.6% over the 2013 budget, or less than 2% based on year-to-date actuals, reflecting recent economic and revenue improvement.

PLAN TO ACCOMMODATE RESTRUCTURED DEBT SERVICE

In fiscal 2011 the town restructured a portion of its debt to create budget relief through fiscal 2016 and minimize planned tax rate increases. The restructuring did not extend the life of the total portfolio. Fitch's concern about this type of debt restructuring is somewhat offset by the town's development of a plan to address the $2 million-$2.5 million increase in annual debt service for a six-year period beginning fiscal 2017. Future tax rate increases in conjunction with the use of existing unrestricted general fund balance are expected to help cover the higher debt service costs

Starting in fiscal 2012 the town has allocated any unassigned fund balance over the 15% policy to a debt service reserve and capital asset reserve within the assigned general fund balance. The debt service reserve and capital asset reserve balances totaled $3.4 million and $2 million, respectively, in fiscal 2012. The town's long-term financial forecasts shows maintenance of the 15% unassigned fund balance policy, and some use of these funds to cover the aforementioned increase in debt service costs and pay-go capital.

MODERATE DEBT PROFILE

The town's total debt levels are moderate with $3,820 overall debt per capita and 2.5% as a percentage of market value. Prudent capital planning, reasonable debt policies, and above-average amortization (over 60% of outstanding debt is repaid within 10 years) are expected to keep the town's debt burden manageable. The town's current capital improvement plan for fiscal years 2014-2019 totals $48 million. The town next plans to sell approximately $5 million-$7 million in bonds in fiscal 2014 or 2015 to fund its capital program.

LIMITED OTHER LONG-TERM LIABILITIES

The town participates in the state-wide Virginia Retirement System. The plan is well-funded at 77.5% and assumes a discount rate of 7.5%. Using Fitch's 7% discount rate assumption the ratio declines to 73.5%. The town regularly contributes its annual required contribution (ARC) to the state plan. Other post-employment benefits (OPEB) liabilities remain relatively low, and the town fully funds its OPEB ARC as well, which Fitch considers a credit positive. Carrying costs for debt service, pension, and OPEB totaled a moderate 19% of total governmental fund spending (excluding capital) in 2012, excluding the $5 million repayment of the 2007 series of BANs.

Additional information is available at 'www.fitchratings.com'.

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 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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=795217

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Contacts

Fitch Ratings
Primary Analyst
Andrew Hoffman, +1-212-908-0527
Analyst
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
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Andrew Hoffman, +1-212-908-0527
Analyst
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
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com