NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'AAA' to the following general obligation (GO) bonds of Wake County, North Carolina (the county):
--$94 million GO public improvement bonds, series 2015.
The bonds are scheduled to sell competitively on March 24. Proceeds will be used for Wake County Schools and Wake Technical Community College improvements.
In addition, Fitch affirms the following ratings:
--$ 1.897 billion of outstanding GO bonds at 'AAA';
--$ 276 million of outstanding limited obligation bonds (LOBs) at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are general obligations of the county, payable from its full faith and credit and unlimited taxing power.
The LOBs are payable from funds subject to appropriation by the county board of commissioners. The LOBs are additionally secured by a deed of trust granting a lien on certain project sites and improvements. If a default occurs the trustee can direct the foreclosure on the mortgaged property and apply the proceeds to the payment of amounts due to LOB owners.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: Wake County continues to budget and forecast conservatively, and adhere to policies and goals that provide a framework for producing stable operating results and maintaining a healthy level of balance sheet resources.
EXCEPTIONAL ECONOMIC PROFILE: Wake County comprises a portion of one of the fastest growing metropolitan areas in the nation. Economic activity is driven by the region's university presence and a significant number of research and technology firms that provide employment for the well-educated workforce.
PRUDENT FINANCIAL PLANNING: Modeling of long-term debt issuance and the operating funds helps ensure compliance with the county's conservative policies. Financial reserves and liquidity are strong.
MANAGEABLE LONG-TERM OBLIGATIONS: Debt service costs are above average, typical for an area with strong growth, but are manageable. Costs related to pensions and other post-employment benefits (OPEB) are modest and do not pressure the credit.
APPROPRIATION RISK: The one-notch distinction in the rating between the GO bonds and LOBs incorporates risk to annual appropriation by the county board of commissioners to pay debt service and limitations on bondholders' recourse in an event of non-appropriation or default.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL POSITION: 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
Wake County is located in northeast central North Carolina and is part of the Research Triangle metropolitan region, which encompasses the cities of Raleigh and Durham, the towns of Cary and Chapel Hill, and their surrounding suburban areas. The county has an estimated 2013 population of 974,289, making it North Carolina's second most populated county.
STRONG FINANCIAL POSITION
Financial operations historically have been characterized by healthy reserves, prudent multiyear planning, and a conservative approach to budget development. Four years of operating surpluses, fueled by economic growth and strong fiscal controls, have generated very strong liquidity and financial reserves.
Fiscal 2014 financial results are exceptionally strong, with both general fund revenues and expenditures favorable to budget. Regional economic expansion contributed to revenues outperforming budget by a total of $26 million. Sales tax revenues were a big contributor to the favorable performance ($7.9 million over budget). Sales tax collections grew a notable 11.1% in fiscal 2014, outpacing the 5.3% year over year gain in fiscal 2013. Real property taxes and real property transfer taxes also experienced strong results in fiscal 2014, again reflecting the surging economy.
The general fund fiscal 2014 net operating surplus after transfers was $36.1 million (3.7% of spending). The unrestricted general fund balance of $149.3 million was a healthy 15.3% of spending. The county's reserve required by state statute, which is primarily to offset accounts receivable, is an additional source of financial flexibility and totaled $81.6 million at fiscal year-end 2014. In sum, the unrestricted reserves and reserves by state statute totaled 24% of spending.
The county also maintains reserves in its debt service fund, which had a total fund balance of $135.3 million at the close of fiscal 2014, representing 56% of debt service expenditures. Although these reserves are intended to pay future years' debt service, they could be moved back into the general fund for any purpose at the discretion of the county commission.
The county's operating fund balance policy is to maintain a total general fund and debt service fund balance of at least 30% of total revenues. The county is in compliance with all financial and debt policies.
Budgeted fiscal 2015 general fund appropriations are up 2.8% over the prior year's budget and include a 2.75% increase in salaries. Budgeted revenue growth includes $55.7 million from a 4.4 cent (per $100 of assessed valuation) property tax increase to support debt service and pay-go financing for the county's capital plan. Sales tax revenues are budgeted for a moderate 5% increase, but current sales tax projections show a $5.6 million favorable budget variance. The general fund budget includes a modest $5.3 million appropriation of fund balance, but with the strong sales tax collections and other favorable revenue variances officials expect to close the year with almost a $4 million operating surplus.
STEADILY EXPANDING ECONOMY
Wake County is among the nation's fastest growing counties. Raleigh serves as both the county seat and the state capital. The large government sector fosters economic stability and helped minimize the impact of the recession on overall employment. Over the past 10 years unemployment rates have outperformed the state and nation. The December 2014 rate was a low 4.1%. The Raleigh metro area has three years of post-recession growth and its employment gains rank ninth in the nation and the leader in the state. Global Insights forecasts robust economic expansion over the next several years. Median home values showed full recovery from the economic downturn in 2014 and are forecast to rise 4% in 2015, according to Zillow Group data.
The county is home to a portion of the Research Triangle Park (RTP), which was founded to diversify the state's economic base and foster high technology jobs. RTP is located between three major research universities (Duke, University of North Carolina and North Carolina State), and the park includes 170 global companies including IBM, DuPont, Cisco Systems and Wells Fargo. The county hosts a total of six public and private institutions of higher education, the largest community college system in the state, and three acute care hospital systems.
The well-educated labor force is a feature in attracting corporate expansions as 48% of county residents have a bachelor's degree, compared to 29% nationwide. The highly skilled employment base translates into favorable wealth levels; the county's median household income is 143% and 124% of the state and nation, respectively. The 2013 poverty rate is 11%, well below the national rate of 15.4%.
AFFORDABLE DEBT LEVELS
Overall debt ratios are moderate at 2.7% of market value and $3,479 on a per capita basis. Debt is rapidly amortized with approximately 70% of GOs and LOBs maturing within 10 years. Variable rate obligations account for a manageable 8.9% of total direct debt. Each series of variable rate debt has a standby bond purchase agreement which expires in 2017. The debt profile does not have exposure to derivative products. Debt service accounted for a moderately high 19.6% of fiscal 2014 governmental fund spending, partially reflecting rapid debt amortization and the rapid population growth. Moreover, counties in North Carolina fund school building needs, including debt service, but state supported school teaching and administration expenditures ($767 million in fiscal 2014) are reported in the school's audit.
The 2015-2021 capital plan totals $1.4 billion and includes GO bond funding of $810 million for school projects and $95.75 million for community college needs, both approved by the voters. Primary and secondary school enrollment increased 11.2% over the past five years and the school system 2014 utilization report indicates the use of 1,119 portable classrooms. The expansions will not eliminate the need for the portables as enrollment growth is expected to continue, but as new schools are built the county intends to shift the units to areas of future residential development. Given the rapid retirement rate of existing principal, debt ratios should remain manageable. The county plans to fund 80% of the capital program with additional debt and 20% from a dedicated portion of the property tax levy. The county's next debt issuance is planned for fiscal 2016 in the amount of $385 million.
OTHER LONG-TERM LIABILITIES EXPECTED TO REMAIN AFFORDABLE
Pension and OPEB liabilities continue to be low and well managed. The county contributes to four retirement plans, including the state's well-funded Local Government Employees' Retirement System (LGERS). The county's fiscal 2014 total contribution was low at 1% of governmental fund spending. The actuarially accrued unfunded OPEB liability is a minimal $209 million. The county pays its OPEB obligation on a pay-go basis and the cost is also low at less than 1% of spending. Total fiscal 2014 carrying costs (debt service, pension ARC and OPEB payments) were a manageable 21% 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=980920
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