Fitch Affirms Henrico County, VA GOs 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the following bonds of Henrico County, Virginia (the county):

--$341.8 million general obligation (GO) bonds at 'AAA';

--$33.3 million Virginia Public School Authority GO bonds, series 2008 at 'AAA';

--$26.8 million Economic Development Authority of Henrico County (EDA) lease revenue bonds, series 2009A & B at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are general obligations of the county and the full faith and credit of the county will be irrevocably pledged.

The lease revenue bonds are secured by rental payments made by the county to the EDA and a lien on essential government assets.

KEY RATING DRIVERS

DIVERSE ECONOMY: The county's diverse economic base, ample land supply and favorable location within the Richmond metropolitan area promote continued development and expansion. The broad employment base supports relatively low unemployment rates and above-average wealth levels.

LOW DEBT BURDEN: Overall debt levels are expected to remain low due to the county's limited debt plans, rapid amortization of principal, commitment to pay-as-you-go capital funding, and adherence to prudent debt policies.

FINANCIAL PROFILE REMAINS STRONG: Continued strong financial management and planning has contributed to ample reserve levels and controlled expenditure growth.

APPROPRIATION DEBT LIEN ON ESSENTIAL ASSETS: The lease revenue bonds are subject to annual appropriation. Fitch believes a lien on essential government assets provides sufficient incentive to appropriate for a one-notch distinction between the lease and GO ratings.

RATING SENSITIVITIES

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.

CREDIT PROFILE

Henrico County benefits from its location, which surrounds Virginia's capital of Richmond (GO bonds rated 'AA+' by Fitch; Stable Outlook) on the northern side of the James River. The county's 2013 population was 318,611, an increase of 21.5% since the 2000 census.

ROBUST ECONOMY

The local employment base is substantial and diverse, representing about one-third of the Richmond metropolitan statistical areas (MSA) employment base. Two fortune 500 companies, Altria and Genworth, base their headquarters in Henrico County. Capital One and Wells Fargo, the county's third and ninth largest employers, respectively, have both established call centers in the county in recent years.

Unemployment has remained consistently below that of the nation, as evidenced by the county's May 2014 unemployment rate of 5.3%, compared to the national average of 6.1%. Wealth indicators are above average, with a per capita money income 19.5% greater than the national average.

The county's tax base has begun to recover following several years of modest to moderate declines. The 2014 taxable assessed valuation is projected to increase by over 3% from the prior year after marginal growth in 2013.

PRUDENT FISCAL MANAGEMENT

Strong financial management is reflected in high reserve levels, detailed planning, and stringent expenditure controls. The county has consistently complied with its policy to maintain unassigned fund balance at 15% of general fund expenditures. Any unassigned reserves over the policy level are assigned to capital projects.

Fiscal 2013 ended with a $19.2 million net deficit after transfers (3% of general fund spending) resulting in an unrestricted general fund balance of $189.3 million, or an ample 29.3% of spending. This fourth consecutive decline in general fund reserves is largely the result of planned large transfers to the capital projects fund, which totaled $32 million in fiscal 2013 alone. The balance in the capital projects fund is larger than the unrestricted general fund balance at $191.3 million.

The majority of the county's revenues are generated from property tax revenues (55.7% in fiscal 2013). The county's tax rate has not been increased since 1979 and is competitive with those of similarly sized localities.

The fiscal 2014 budget was adopted with a $10.1 million use of general fund balance. Conservative budgeting practices and increased gas tax revenues from the state have led to positive budget variances on both revenues and expenditures. The county is now anticipating adding to fund balance at year-end.

The fiscal 2015 budget was adopted with no tax rate increase and a $21.7 million appropriation of fund balance. Budgeted general fund revenues have increased 4.9% from the prior year and are primarily driven by the introduction of a 4% meals tax and another expected increase in gas tax revenues from the state. Despite the sizable appropriation, Fitch expects management to continue to maintain sound reserve levels and record positive operating performance.

FAVORABLE DEBT PROFILE

The county's strong debt profile is supported by adherence to conservative policies and rapid amortization. The county's overall debt burden has remained consistently low at $1,639 per capita and 1.4% of market value. Principal is retired at 72.9% within 10 years.

The debt burden is expected to remain low as the county has continued funding many of its capital needs using pay-as-you-go financing.

The capital improvement plan (CIP) totals $1.82 billion, of which $1.37 billion is related to general capital projects. The county intends to prioritize necessary projects in the CIP. The plan includes $60.9 million in debt financing for general capital projects. The county is expecting to issue roughly $40 million in debt in fiscal 2015 to replace the regional public safety radio dispatch systems.

County employees participate in the statewide Virginia Retirement System (VRS), an agent multi-employer defined benefit plan. The county makes annual payments as determined by the state that equal its annual required contribution (ARC). The county's portion of the plan is funded at 70.3%, reflecting the plan's assumed 7% investment return assumption. The county pays in excess of its pay-as-you-go amount for other post-employment benefits (OPEB) and the unfunded actuarially accrued liability of $61.6 million represents a slight 0.2% of market value. Carrying costs (including debt service, pension, and OPEB) accounted for a moderate 15.7% of general government spending in fiscal 2013.

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, Underwriter, Bond Counsel, Underwriter Counsel, and Trustee.

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=846315

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.

Contacts

Fitch Ratings
Primary Analyst
Andrew Hoffman
Analyst
+1-212-908-0527
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Evette Caze
Director
+1-212-908-0376
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Andrew Hoffman
Analyst
+1-212-908-0527
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Evette Caze
Director
+1-212-908-0376
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com