NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Prince William County, Virginia (the county) general obligation (GOs) bonds:
--$89.23 million special obligation school financing bonds, Prince William County series 2014, issued by the Virginia Public School Authority (VPSA).
Special obligation bond proceeds will be used to fund various school projects. The bonds will be priced via competitive sale on Sept. 23, 2014.
In addition, Fitch affirms the following ratings:
--$172.1 million special obligation financing bonds, series 2011, 2012 and 2013 issued by the VPSA at 'AAA';
--$312.44 million county GO bonds at 'AAA' issued by the county;
--$140 million certificates of participation (COPs) and lease participation certificates (LPCs) at 'AA+';
--$10.69 million Prince William County Industrial Development Authority lease revenue bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The VPSA bonds are payable from debt service payments on underlying GO bonds made by the county on behalf of the school, held by the authority and pledged to the payment of the bonds.
The GO bonds are general obligations of the county, secured by its full faith and credit pledge and unlimited taxing power.
The COPs, LPCs and lease revenue bonds are secured by lease rental payments subject to annual appropriation by the county; essential assets are subject foreclosure in the event of non-payment.
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: Reserve levels and financial flexibility remain sound, supported by prudent fiscal policies, multi-year planning and ample revenue flexibility.
DYNAMIC ECONOMY: The county's strong and diverse economic base benefits from its location near Washington, D.C., with high wealth levels, a highly educated labor pool and low unemployment. Recent tax base growth has been robust.
FAVORABLE DEBT PROFILE: Prince William County continues to adhere to good debt management guidelines, which has resulted in moderately low overall debt and rapid amortization.
APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA+' rating on the COPs, LCPs, and lease revenue bonds reflects the county's credit characteristics and appropriation risk. Lease provisions are solid and the majority of leased assets are viewed as essential to county operations.
STRONG MANAGEMENT PRACTICES: Management adheres to its prudent and institutionalized financial and debt management policies.
RATING SENSITIVITIES
STRONG FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong economy and financial position.
CREDIT PROFILE
The county is located in northern Virginia, approximately 35 miles southwest of Washington, D.C. and encompasses an area of 348 square miles, of which 18.8% is federally owned land. The county's population continues to grow at a rapid pace, reaching an estimated 438,580 in 2013.
HEALTHY RESERVE LEVELS
The county's unrestricted general fund balance remains healthy despite the use of committed general fund balance for capital spending. Fiscal 2013 ended with a deficit after transfers of roughly $11.5 million, below the $17.3 million budgeted appropriation. The resulting unrestricted general fund balance was $156 million, equal to 15.9% of expenditures and transfers out. The county continues to meet its healthy 7.5% unassigned general fund reserve fund balance policy.
The fiscal 2014 adopted budget reflects a 5.3% increase over the prior year. The budget includes a 2.8 cent tax rate decline to $1.181 per $100 of assessed value (AV; 4.1% increase in the levy due to taxable value appreciation) and a $18.3 million fund balance appropriation. Year-to-date operations show strong positive variances driven by under spending. Management is anticipating a $10 million use of fund balance. Reserves were mostly used to fund capital costs related to public safety equipment and landfill capping.
The fiscal 2015 adopted budget reflects a 2.8% increase over the prior year. The budget includes a 3.3 cent tax rate decline to $1.148 per $100 of AV and an $11.9 million fund balance appropriation. The budget includes funding for programs and services back to pre-recession levels. The budget also includes funding of a $12 million merit and salary increases. The county historically outperforms its budget and replenishes a large majority of the annually appropriated fund balance.
STRONG LOCAL ECONOMY ANCHORED BY FEDERAL GOVERNMENT PRESENCE
The county benefits from its favorable location on the outskirts of the Washington, D.C. metropolitan region, its relative affordability, and a well-educated and trained workforce. Its stable economic base, rooted in government and military employment, has expanded to encompass the life sciences sector. The Quantico Marine Base and a forensic science/criminal justice cluster also help attract contractors and federal agencies.
Diversification into the life sciences sector should be aided by the new 1,600-acre INNOVATION@Prince William business and technology park as well as proximity to George Mason University. The county remains exposed to changes in defense spending although 30,000 personnel relocated to the county after the last BRAC realignment.
The county has experienced rapid population growth since the 1970s, with increases during the past decade outpacing those of the commonwealth by about three times. The county continues to post higher employment growth relative to the metropolitan statistical area (MSA) and the state which is reflected in the low 4.7% unemployment rate as of July 2014. Strong employment growth is supported by continuous private capital investments. Approximately $800 million in capital investment adding an estimated 400 - 500 new jobs over the next year or so.
AFFORDABLE DEBT LEVELS
Overall debt levels are expected to remain moderately low given the county's comprehensive planning and debt affordability guidelines. Overall debt equals $2,618 per capita and 1.9% of market value, well below the county's policy of 3%. Amortization is moderate and annual debt service costs are affordable at 10% of total governmental spending. The county's approximately $1.4 billion fiscal year 2015-2020 capital improvement plan is primarily debt financed ($929 million) and comprises mostly education related projects at $949 million, paygo spending accounts for mainly a quarter of funding.
MODEST PENSION AND OPEB COSTS
Long-term liabilities related to employment benefits are not expected to pressure future operations. As of June 2012, the county's portion of the state's (VRS) pension program was funded at 72.4%. The unfunded actuarial accrued liability totals approximately $266 million or a very low 0.57% of market value. The county also maintains a small supplemental retirement plan which is well funded and a volunteer fire and rescue personnel length of service award program. The 2013 actuarially required contribution (ARC) for all plans accounted for a modest 2.9% of governmental expenditures. Notably, the county annually funds its ARC for other post-employment benefit (OPEB) which accounted for less than 1% of 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, 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
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=871434
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