NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed at 'AAA' the rating on the following general obligation (GO) bonds of Charleston County, South Carolina (the county):
--GO refunding bonds, series 2004, series 2012, and series 2013 (taxable);
--GO transportation sales tax revenue and refunding bonds, series 2006, series 2012, and series 2013.
The Rating Outlook is Stable.
The GO bonds are backed by the county's full faith and credit and unlimited ad valorem taxing ability. The GO transportation sales tax bonds are additionally secured by an irrevocable pledge of the revenues from a one-half-cent transportation sales tax imposed by the county.
KEY RATING DRIVERS
SUPERIOR FINANCIAL PERFORMANCE: The 'AAA' rating reflects the county's strong financial management and fiscal discipline, evidenced by its ability to generate favorable operating results during a challenging economic environment, and consistent maintenance of reserves in excess of prudent policy minimums.
FAVORABLE DEMOGRAPHIC FACTORS: Stable population growth, above-average wealth characteristics, and the high educational attainment of county residents underscore the demographic strengths of the county.
MODERATE DEBT POSITION: Key debt ratios are moderate, as are the cost of funding the county's long-term debt and employee benefit liabilities.
ECONOMY EXPANDING AND DIVERSIFYING: Unemployment remains low, and recent years' job growth has outpaced the state and nation. Area employment remains heavily influenced by the government sector and the military, though continued diversification is evident and viewed favorably.
The GO 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 highly unlikely.
Charleston County encompasses an area of 945 square miles in southeastern South Carolina, including 97 miles of coastline along the Atlantic Ocean. The county's 2012 estimated population of 365,162 makes it the third most populous county in the state.
VERY STRONG FINANCIAL POSITION
The county's financial position has steadily improved over the prior decade, and current reserves are very strong. In fiscal 2012 the county posted a $4.1 million operating surplus (after transfers) in the general fund, increasing the unrestricted fund balance to $55.5 million or 32% of spending. Fitch views the county's reserve policies, which include a designated reserve equal to two months of spending (or 16.7%) and a rainy day reserve equal to 4% for emergencies, to be financially prudent.
The county typically appropriates reserves in excess of its policy requirements for one-time purposes, but there is a lengthy history of these funds not being expensed and returned to fund balance. The county forecasts the use of about $3 million in fund balance in fiscal 2013 (compared to the budgeted use of $8.8 million), and the draft proposed budget for fiscal 2014 appropriates $7.6 million for pay-as-you-go capital. Fitch expects the county will remain comfortably compliant with its reserve policies despite the use of funds forecast through fiscal 2014.
MODERATE DEBT LEVELS
The county's overall debt ratios remain moderate at about $3,140 per capita and 2% of market value. The debt ratios include the proposed issuance of approximately $90 million of special source revenue bonds, which are secured by fee-in-lieu of tax (FILOT) revenues and a covenant of the county to make up any FILOT deficiency from other available moneys, subject to annual legislative appropriation.
The current five-year capital plan includes $39.9 million in general capital improvements and $140 million in transportation projects largely financed from existing bond funds. Additional borrowing is not presently contemplated. The county may consider referendums in November 2014 for library buildings and a second transportation sales tax, which would likely lead to additional issuance if successful.
Recent issuance drives the county's debt service cost to a peak of about $55 million in fiscal 2018 from $45 million in fiscal 2012. However, the total carrying cost for all long-term liabilities (debt service, pension, and other-post employment benefits (OPEB)) are expected to remain manageable, consuming less than 20% of governmental fund spending (excluding capital project fund expenditures).
LIMITED PENSION AND OPEB LIABILITIES
The county's pension liability is limited to its participation in the South Carolina Retirement System (SCRS) and the South Carolina Police Officers Retirement System (PORS) state plans. Fitch notes that the funding levels for the state pension plans is somewhat weak at 67% for SCRS and 73% for PORS. Fitch therefore expects the county's cost of participating in these plans (a manageable $9.7 million in fiscal 2012) to continue to rise. The county's relatively small OPEB liability is funded on a pay-as-you-go-basis.
CONTINUED ECONOMIC GROWTH AND LOW UNEMPLOYMENT
Charleston County continues its steady recovery from the recession, having fully recovered the job losses incurred from 2008-2010. The county's July 2013 6.5% rate of unemployment is well below the state (8.1%) and U.S. (7.7%), and much improved from a peak of 9.1% in 2010. Global Insight forecasts annual non-farm employment growth of a solid 2.2% through 2018 for the Charleston-North Charleston-Summerville metropolitan statistical area (MSA).
The county's considerable exposure to the military warrants attention as the impact of sequestration unfolds. Joint Base Charleston employs 22,000 active-duty military personnel and civilians, representing about 7% of total employment within the MSA. The base is home to the Space and Naval Warfare Systems Center (SPAWAR) supporting critical communications, intelligence, surveillance and reconnaissance operations for the Navy.
The Port of Charleston remains an important economic engine for the region, anchoring international trade and transportation activity, as well as tourism in the form of an expanding cruise industry. Boeing employs 5,900 but just announced a $1 billion expansion expected to create an additional 2,000 jobs over the next eight years. In November 2011 Boeing opened a $750 million 787 Dreamliner assembly plant within the county. A fairly sizable health and education sector lend depth and stability to the economy.
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:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria