NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to the County of Chester, PA's (the county) general obligation (GO) bonds:
--$83,395,000 GO bonds, series of 2014, 'AAA.'
The bonds are expected to sell via negotiation in mid-November. Proceeds of the bonds will be used to advance refund the series 2007 bonds and provide funds for various capital projects.
In addition, Fitch affirms the following ratings:
--Approximately $237.6 million outstanding GO bonds (series 2009B, 2009C, 2010A, 2011 (bonds and notes), 2012, 2013A and 2013B) at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are a general obligation of the county backed by its unlimited tax pledge.
KEY RATING DRIVERS
ABOVE-AVERAGE SOCIOECONOMIC FUNDAMENTALS: The county benefits from high wealth and income levels and a stable and diverse employment base including major corporations and federal, state and local government institutions.
HEALTHY RESERVE POSITION: The county continues to maintain solid reserve levels through conservative budgeting practices.
STRONG MANAGEMENT: County officials have consistently demonstrated proactive and effective financial stewardship.
MANAGEABLE LONG-TERM LIABILITIES: The county's debt profile is manageable, characterized by a sizable overall debt burden but modest future borrowing needs, average amortization and reasonable pension costs.
RATING SENSITIVITIES
SHIFTS IN FUNDAMENTAL CHARACTERISTICS: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong reserve levels and financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The county is located in southeastern Pennsylvania, 30 miles west of Philadelphia. The 2010 U.S. Census recorded the county's population at 498,886, an increase of 15.1% since 2000. While future growth is expected, Fitch believes it will be at a slower pace.
DIVERSE ECONOMY AND TAX BASE SUPPORTED BY ABOVE-AVERAGE WEALTH LEVELS
The county's economy is well established and diverse among financial services, education, health services and agriculture sectors. Non-governmental employers are led by Vanguard Group, QVC, Inc., Siemens Medical Solutions, and Giant Food Stores. The county's unemployment rate of 5.0% in July 2014 remains well below the state and national averages of 6.1% and 6.5%, respectively and lower than the rate recorded a year earlier, as labor force reduction (-0.9%) outpaced employment growth (0.5%).
Taxable assessed value, which is 72% residential, has remained fairly stable over the last several years. The county enjoys a diverse tax base with little concentration in any one sector or taxpayer. The top 10 taxpayers represent a modest 2.4% of total assessed valuation. Total property tax collections are strong, averaging over 99% for the last five years.
Wealth levels are well-above-average with 2012 median household income equal to 165% and 163% of state and national levels, respectively, making Chester County one of the wealthiest counties in the state.
STRONG RESERVE LEVELS DESPITE DRAWDOWNS
The county's general fund balance remains strong due to conservative budget practices, expenditure controls, and a healthy flow of revenue driven primarily by property taxes, which comprise approximately 73% of revenues.
The county allocates its overall tax rate to four funds: general, debt service, library and parks. The county's overall tax rate remained relatively flat from 2009 through 2012. In 2013 the county increased the rate by approximately 5%. After several years of general fund tax rate allocation decreases, the general fund allocation was increased by 2.73% in 2013. Expenditures have been controlled through cost-cutting measures that included workforce reductions through attrition and consolidation of departments.
For 2013 (year-end Dec. 31), the county budgeted conservatively for an $8.8 million use of general fund balance but recorded a small surplus after transfers of $985,898, increasing the fund balance to $40.7 million or 29.7% of general fund spending. Tax collections were slightly more than budget due to a small increase in the county's assessed tax base. Reserve levels continue to be strong. The unrestricted fund balance totaled $39.2 million or a healthy 28.6% of general fund spending, comparable to the last three years. The county has consistently exceeded its policy to retain reserves equal to 10% of expenditures. Fitch believes the county's strong reserve position provides it with substantial financial flexibility and is key to maintaining the high rating level.
CONSERVATIVE BUDGETING PRACTICES
Management historically has appropriated a portion of general fund reserves to balance the budget and the 2014 budget includes an appropriation of $8.8 million. Based on year-to-date results, management estimates that it will use less than $4 million. Fitch believes projections are reasonable given the county's historical results and prudent financial planning. The 2015 budget is in development.
MANAGEABLE DEBT PROFILE
The county's debt levels of $4,820 per capita and 3.9% of market value are moderate- to above-average due primarily to a significant amount of overlapping debt. Debt levels should remain fairly stable as the county's debt plans over the next four years are modest at approximately $128 million and amortization is average with approximately 52% of debt paid off over the next 10 years.
ADEQUATELY FUNDED PENSION PLANS
The county-operated pension plan is well-funded at 88% as of Jan. 1, 2014, based on the plan's 7.5% rate of return. Under Fitch's more conservative 7% rate of return adjustment, the funded ratio is still adequate at an estimated 83%. The county traditionally makes 100% of its annual required contributions (ARC) and in fiscal 2013 its ARC was $7.8 million, a low 2% of total government spending. Other post-employment benefit (OPEB) costs are limited due to the elimination of retiree health benefits beginning in July 2006. The county makes pay-as-you-go payments and had unfunded actuarial accrued liabilities of a modest $2 million as of Dec. 31, 2013. Carrying costs for debt service, pension and OPEB equaled a modest 11.7% of 2013 total government 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, CoreLogic Case-Shiller Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated 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=885654
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