NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the rating on the following Franklin County, NC bonds:
--$61 million general obligation (GO) bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the county's pledge of its full faith and credit and its unlimited taxing power.
KEY RATING DRIVERS
SOLID RESERVES DESPITE DRAW-DOWNS: General fund financial operations feature strong reserve balances, despite moderate draw-downs in recent years. The county budgets conservatively, with actual results outperforming budget projections, and has demonstrated a willingness to raise tax rates in the past to improve financial flexibility.
MIXED ECONOMIC INDICATORS: Unemployment has been decreasing and the July 2014 county rate is below state and national averages. County income levels, however, remain below average relative to state and national figures. The county's economic base has benefited from its location near the Research Triangle Park, with resulting expansions in county technology sector businesses.
FAVORABLE DEBT PROFILE: County debt levels are low and debt amortization is rapid. Debt levels should remain moderate, even with additional planned near-term debt issuance. Carrying costs of debt service, pension, and other post-employment benefit (OPEB) costs are manageable.
RATING SENSITIVITIES
STRUCTURAL BUDGET BALANCE AND MAINTENANCE OF RESERVES: The county has maintained solid reserve levels despite recent draws on general fund balances to fund operations. Continued structural budget imbalance leading to a significant reduction in reserve levels could pressure the rating. The Stable Outlook reflects Fitch's expectation that a significant reduction is unlikely.
CREDIT PROFILE
The county is located in North Carolina's upper Piedmont Plateau, approximately 30 miles from Raleigh, NC and the Research Triangle Park. County population growth has been strong in recent years. The 2013 population of 62,260 represents growth of 32% since 2000, which is stronger than comparable state (22%) and national (12%) rates.
SOLID RESERVE LEVELS DESPITE DRAW-DOWNS
The county has a history of maintaining healthy reserve levels, in excess of 21% of spending since at least fiscal 2007. The fiscal 2013 unrestricted general fund ending balance was $17 million or 24.4% of spending. Adding funds restricted by state statute, primarily to offset accounts receivable, the available balance was $20.5 million or a strong 29.5% of spending. The county's reserve policy requires maintenance a 15% unassigned balance.
Fiscal 2013 ended with a general fund deficit after transfers of $760 thousand (1.1%), which was considerably less than the budgeted deficit of $3.1 million. For fiscal 2014, another moderate deficit is estimated ($984 thousand or 1.4%), again lower than the adjusted budget figure of $3.9 million. The fiscal 2015 budget assumes a deficit of $3.5 million, but management expects the figure will again be lower, closer to $1 million, as revenue and expenditure projections continue to be conservative. The county has a history of conservative budgeting, with actual results outperforming budget expectations.
Property taxes make up over one-half of county general fund revenues. The property tax rate ($0.8725 per $100 of valuation) has remained constant in recent years, but the county is considering an increase for fiscal 2016 (5 cents, estimated to generate about $2 million) to improve financial flexibility and lessen reliance on fund balance draws. A five cent tax increase was last approved in fiscal 2010, raising the rate to its current level. The county has flexibility to raise its tax rate, as the current rate is below the state cap. State law permits counties to impose property taxes of up to $1.50 per $100 AV without the requirement of a voter referendum. No limit is imposed on debt service.
In prior years, the general fund was pressured by transfers out to support the water and sewer fund. Due to the fund's stabilization, there have been no transfers since fiscal 2011 and the fund started repaying a $7 million loan from the general fund in fiscal 2012. The fiscal 2014 payment was $500 thousand, leaving $5.1 million outstanding.
MIXED SOCIOECONOMIC INDICATORS
Employment trends have been positive in recent years and county unemployment has been decreasing. The county unemployment rate as of July 2014 (6.4%) is below state (6.9%) and national (6.5%) averages. However, county income levels remain below average relative to state and national figures. County per capita money income was 86% and 77% of state and national averages, respectively. The county's taxable assessed value (TAV) has seen annual growth in recent years. TAV grew by 1.1% in fiscal 2014, with 1.8% growth for fiscal 2015. Continued moderate growth is expected over the near-term based on recent home price trends and building permit activity.
LOCAL ECONOMY BENEFITS FROM PROXIMITY TO RESEARCH TRIANGLE PARK
The county's economy was traditionally based in agriculture and textiles but has broadened as biotechnology and other technology focused businesses gravitated to the Research Triangle Park. Novozymes North America, Inc., a manufacturer of food and industrial grade enzymes, is the county's largest employer (516 employees). The firm recently announced a planned $31 million expansion to increase its manufacturing capacity expected to be completed over the next three years. The Kerr Tar Regional Economic Development Corporation (KTREDC), a four-county consortium, has completed construction of a local industrial park to attract additional biotechnology and other technology, advanced manufacturing, and distribution firms.
MODEST DEBT BURDEN; MANAGEABLE CARRYING COSTS
County debt levels are low at $1,377 per capita and 2.0% of market value. Rapid amortization (about 72% of principal retired within 10 years) contributes to the somewhat high debt service, equal to about 16% of governmental expenditures in fiscal 2013.
Additional near term debt plans include $1.2 million to fund a courthouse renovation. The county may also issue debt (approximately $2.4 million) to assume outstanding debt as part of its planned purchase of the Town of Franklinton's utility system (water/ sewer), though this debt would be backed by the county's water/ sewer fund revenues. Ongoing annual pay-go funding of capital projects, including roof replacement and minor renovations, is estimated at about $1 million annually.
Most county employees participate in the statewide Local Governmental Employees' Retirement System (LGERS), a cost-sharing multiple-employer plan. LGERS remains well funded at 99.8% as of June 30, 2013 or 97.1% under Fitch's 7% discount rate assumption. The county also administers a single-employer supplemental pension plan for qualified law enforcement officers, which it funds on a paygo basis. Other post-employment benefits (OPEB) for retiree healthcare are also paygo funded. Overall carrying costs, including debt service, total required pension contributions and OPEB payments are manageable, representing about 18% of governmental spending.
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.
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=883914
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.