NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Maryland-National Capital Parks and Planning Commission (MNCPPC) bonds:
--$26.6 million Prince George's County general obligation (GO) park acquisition and development project bonds, series PGC-2014A.
Proceeds of the bonds will be used to fund park acquisition and development projects in Prince George's County (the county), Maryland. The bonds are scheduled for sale on May 1, 2014.
In addition, Fitch affirms the following rating:
--$39.5 million Prince George's County MNCPPC GO bonds at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of both the commission and the county, to which the full faith and credit of each is pledged. The bonds are payable in the first instance from proceeds of limited annual ad valorem taxes that the county is required to levy in the Maryland-Washington Metropolitan District in the county (the metropolitan district) pursuant to state law.
KEY RATING DRIVERS
CREDIT STRENGTHS OF MNCPPC AND PRINCE GEORGE'S COUNTY: The 'AAA' rating reflects the creditworthiness of both MNCPPC and county. Given the double-barrel pledge, if at any point in the future the ratings of the entities diverge, the rating on the commission bonds should always reflect the higher of the two ratings.
MNCPPC CREDIT PROFILE: The commission's 'AAA' GO credit profile reflects a history of healthy financial performance, low debt and strong financial policies. The commission's limited programmatic mission is centered on the acquisition, operation, and maintenance of a sizeable and highly regarded regional parks system.
SIGNIFICANT DEBT SERVICE LEVY FLEXIBILITY: Proceeds from a state-mandated limited ad valorem tax are dedicated to the repayment of MNCPPC bond principal and interest with significant flexibility remaining under the cap.
WELL MANAGED DEBT: Overall commission debt levels are low and the aggressive amortization of outstanding principal affords the commission future financing flexibility.
DIVERSE AND EXPANDING ECONOMY: The county benefits from its central location in the national capital region and its well-developed transportation infrastructure, attracting a strong economic base centered upon vital government operations, healthcare and higher education. The county's relatively low unemployment rate underscores the economic strengths.
SOUND FINANCIAL PERFORMANCE: Maintenance of financial resources and flexibility is a key rating driver for the commission, given the limitations of its operating and governing structure. A decline in reserve levels is expected over time based on the parks and planning initiatives but will remain solid.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics of the county and, if those were to deteriorate, the commission. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
CREDIT PROFILE
FOCUSED MANDATE
The MNCPPC is a bi-county agency, empowered to plan, acquire, develop, maintain and administer a regional system of parks of approximately 62,000 acres comprising nearly all of Prince George's County and Montgomery County. The commission also prepares and periodically reviews a general plan for the entire district including master plans for transportation, parks and open spaces and public facilities and also studies and makes recommendations with respect to all requested zoning applications. The commission employs over 2,000 year-round employees and nearly 4,500 seasonal workers. Two regional offices are maintained, one in each county and the commission holds regular monthly meetings.
Each county appoints a planning board to the commission to facilitate, review and administer the matters affecting their respective counties. The commission's major source of funding is property taxes levied on an individual county basis. Separate accounts for each county are maintained within the commission's general fund for transparency purposes. Debt is issued separately for each county, not for the commission as a whole.
SIGNIFICANT PLEDGED REVENUES
State law requires the county to assess a levy of at least $0.04 per $100 of assessed value (AV) on all real property and at least $0.10 per $100 AV of all personal property located within the metropolitan district. The proceeds of this tax are pledged to payment of debt service on all commission bonds issued for the county's behalf, with any amount not needed for debt service available to the commission for its authorized purposes. The county has no claim to revenues generated by this tax. MADS on the bonds consumes 33% of the 2014 budgeted mandatory levy. Debt service is descending allowing for additional future flexibility.
ROBUST ECONOMY
The county's economic base benefits from its location adjacent to Washington, D.C. as well as its own broad commercial base. Vital governmental bureaus and higher education, including Andrews Air Force Base and the University of Maryland provide economic stability. The University of Maryland has begun construction of M Square, a planned 2.5 million square foot university-related research park. Expansion continues in the $2 billion mixed-use National Harbor project along the Potomac River, including the announced construction of the Tanger Outlets at National Harbor, with an estimated capital investment of $100 million. The December 2013 unemployment rate of 5.9% is slightly higher than the state and is well below national averages and reflects some contraction in the labor force.
The recent national housing correction led to a cumulative 23% decline in the commission's Prince George's County assessable tax base. An estimated 0.3% increase is projected for fiscal 2015, which Fitch believes is reasonable given recent housing trends.
AMPLE FINANCIAL RESERVES
MNCPPC's financial position remains strong following three consecutive years of large operating surpluses stemming from conservative financial management. Between fiscal 2011 and 2013 MNCPPC has generated a cumulative surplus of approximately $100 million, including a $45.5 million transfer from the capital project funds in fiscal 2012. At year-end fiscal 2013 the unrestricted balance totaled $220.7 million or an ample 108.6% of general fund operations.
PROJECTED FISCAL YEAR-END 2014 RESULTS
For fiscal 2014, the commission appropriated $41.2 million of fund balance. Year-to-date projected year-end results show a $35.4 million operating deficit and include approximately $24.3 million in pay-go spending. The unrestricted balance is expected to remain ample at $185.4 million or 71.5% of general fund spending.
PROPOSED FISCAL 2015 BUDGET AND BEYOND
The proposed fiscal 2015 budget for Prince George's County is essential flat over the prior year's budget and again reflects a structural deficit created by declining property tax revenues by including a $42.7 million fund balance appropriation. The budget also includes a reduction in project charges paid to the county and a smaller capital improvement plan.
The commission's multi-year financial forecast shows use of all but $22 million (9% of expenditures), primarily for capital projects. The remaining reserve would be above the 5% fund balance policy but well below historical levels. The forecast $86.2 million in reserves transferred to the capital projects fund may be reduced or delayed.
HEALTHY COUNTY RESERVES
County reserves are sound, in spite of revenue raising restrictions and expenditure pressures. The county cannot increase either the real property tax rate or income tax rate due to county charter and state legislative provisions, respectively. Out-year financial projections incorporate growing labor cost pressures.
As expected, the county utilized reserves in fiscal 2013 for one-time uses. Fitch positively views management's stated commitment to balance subsequent budgets without utilizing reserves for operations and to maintain reserves above 7% policy levels; failure to do so would place downward pressure on the ratings or lead to a rating distinction between the county's and commission's ratings.
MANAGEABLE DEBT AND CAPITAL NEEDS
Commission debt levels are expected to remain low given the commission's rapid amortization rate and modest plans for additional debt. The commission evaluates its capital needs with input from the county, the state, and local residents. The six year fiscal 2014 - 2019 capital improvement plan (CIP) related to Prince George's County totals $126 million with development projects accounting for slightly over 87% of all needs and acquisition projects making up the remainder. Amortization of outstanding debt is quite rapid with over 77% of principal scheduled to be retired within the next 10 years and 100% in 14 years.
Commission pension and other post-employment benefits (OPEB) are well-managed. The commission resumed funding 100% of its annual required contributions for the pension in fiscal 2012 following a steep increase in 2011. The commission's pension plan is funded at an adequate 80% using the Fitch-adjusted investment rate of return of 7%.
The commission is engaged in an eight year phase-in to reach the ARC for its OPEB obligation. The proposed fiscal 2015 budget includes funding of 109.6% of the ARC. The commission's unfunded actuarial accrued liability is minimal relative to the tax base.
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, National Association of Realtors, Maryland Department of Business & Economic Development, Real Estate Business Intelligence.
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=826763
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.