NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Johnson County, Kansas (the county) unlimited tax general obligation (ULTGO) bonds:
--$22,320,000 internal improvement bonds, series 2014A;
--$40,260,000 internal improvement refunding bonds, series 2014B.
Both series are expected to be sold via competitive sale on Nov. 5.
Proceeds of the series 2014A bonds will finance various wastewater improvements.
Proceeds of the series 2014B bonds will refund certain maturities of the county's 2007A and 2007B ULTGO bonds.
In addition, Fitch affirms the following ratings:
--$164.5 million outstanding ULTGO bonds, series 2009B, 2009C, 2010B, 2010C, 2010D, 2010E, 2011A, 2012A, 2012B, and 2013A, at 'AAA';
--$49.5 million Johnson County Public Building Commission (PBC) bonds, series 2010A, 2010B, 2010C, and 2010D, at 'AA+'.
The Rating Outlook is Stable.
SECURITY
All ULTGO bonds are obligations of the county to which the full faith, credit and power of the county to levy unlimited ad valorem taxes are pledged; however, the ULTGO series 2010B&E bonds ad valorem tax pledge excludes the assessed valuations of Olathe and Bonner Springs.
The PBC bonds (rated 'AA+') are special limited obligations payable solely from lease payments made by Johnson County from any legally available funds. The county's obligation is absolute and unconditional, not subject to appropriation, abatement, set-off or counterclaim.
KEY RATING DRIVERS
STRONG LOCAL ECONOMY: The county's diverse local economy is characterized by high wealth and low unemployment. The county's economy further benefits from extensive employment opportunities throughout the Kansas City metropolitan statistical area (MSA). An improving housing market and strong ongoing development contributed to solid assessed value (AV) growth for the fiscal 2015 budget.
STRONG FINANCIAL PROFILE: The county's financial position is expected to remain strong even after planned reserve draws and the five-year phase-out of the mortgage registration fee. The county's low tax rate and ability to adjust the millage rate provides additional flexibility. Officials have demonstrated judicious financial management driven by conservative budgeting and adherence to prudent formal financial policies.
MANAGEABLE LONG-TERM LIABILITES: Debt ratios are moderate and pension costs, though increasing, are low. Other post-employment benefit (OPEB) liability is minimal. The county's annual debt service burden is low, helped by the county's practice of funding a substantial amount of its capital needs on a pay-as-you-go basis.
RATING DIFFERENTIATION: The rating for the PBC bonds is one-notch lower than the ULTGO rating, reflecting the county's obligation to make PBC lease payments from available funds.
RATING SENSITIVITIES
LARGER THAN EXPECTED DRAWDOWNS: Fund balance draws to below policy levels may pressure the rating, although Fitch believes management will take the necessary measures to preserve sufficient reserves and overall financial flexibility.
CREDIT PROFILE
Johnson County is located 12 miles southwest of the city of Kansas City, providing residents with easy access to numerous employment opportunities throughout the metropolitan region. Population since 2000 is up 26%, to approximately 567,000 in 2013, making the county the most populous in the state.
ROBUST METRO-KANSAS CITY ECONOMY WITH LOW TAX RATES
The county is home to several Fortune 500 companies. The economy is deep and diverse, anchored by Sprint and Garmin (together employing roughly 11,000 people), healthcare, government, finance, and engineering services. The county's 4.4% unemployment rate as of August 2014 is well below the state and national averages of 4.8% and 6.3%, respectively. Per capita income levels and educational attainment rates are both well above their respective national averages.
The county's AV posted solid 6% growth in fiscal 2014 as a result of strong development, a strengthening local economy, and an improving housing market. The county projects 5% AV annual growth over its multi-year forecasts, which is at the lower end of the projection range provided to the county by its assessor. Fitch believes that the projections are realistic, at least over the near term, given ongoing real estate development and strong year-to-date construction permit activity.
STRONG FINANCIAL PROFILE; SIGNIFICANT USE OF PAYGO
The county has extensively utilized pay-as-you-go financing from the general fund to supplement its capital improvement plan. From fiscal 2010 through 2013, the county utilized a cumulative $26.7 million in general fund balance for one-time purposes; the majority of these draws have been from restricted reserves. The county consistently exceeds its fund balance policy, which calls for total general fund balance to remain within the 20%-25% range. The county posted $71.2 million in unrestricted general fund balance in fiscal 2013, a strong 25.5% of spending.
The county's estimated $8.5 million deficit in fiscal 2014 (ending Dec. 31) is largely driven by $.53 million for one-time capital spending and the continued spend-down of restricted fund balance accumulated from the county's dedicated public safety sales tax. A $5.2 million budgeted fund balance draw in fiscal 2015, which represents the penultimate year of the county's expected unrestricted general fund balance appropriations, continues to be driven by one-time capital expenditures and the use of restricted fund balance.
The statewide phase-out of the mortgage registration fee over the next five years is expected to have a modest negative impact on the county's general fund revenue, which Fitch expects the county will likely offset by utilizing some of its ample revenue flexibility. Fitch believes the county's diverse economy, ongoing commercial/residential development, sound financial management, and solid revenue flexibility should support sound reserves within the county's policy range over the longer term.
MANAGEABLE DEBT AND PENSION BURDEN
The overall debt burden is moderate at $4,187 per capita and 4% of full market value, with the majority of debt attributable to overlapping school districts. The county has minimal plans for non-self-supporting debt in the near future.
The county's contributions to the Kansas Public Employee Retirement System (KPERS) and Kansas Police and Fire Retirement System (KP&F) are a manageable cost pressure at $17.3 million (4.4% of governmental spending) for fiscal 2013. The county makes 100% of statutorily required contributions to these plans, although these payments have been less than the ARC in recent years. Using Fitch's conservative 7% discount rate, KPERS had a very poor 50.8% funded rate at fiscal year-end 2013. Required contribution rates will most likely continue to increase for the county over the next several years following legislative changes in 2012, but Fitch expects KPERS payments to remain affordable.
The county's liability related to other post-employment benefits (OPEB) is limited to an implicit rate subsidy for retirees, funded on a pay-go basis. The county's unfunded OPEB liability is negligible at less than 0.1% of market value. Total carrying costs, including debt service and costs related to retirement benefits, are low at 9.4% of governmental spending (inclusive of PBC Fund expenditures).
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, Trustee, and Zillow.
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=911734
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