Fitch Affirms St. Louis County, MO's GOs at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AAA' rating on the following St. Louis County, Missouri (the county) general obligation (GO) bonds:

--$57.34 million GO bonds series 2012;

--$48.275 million GO bonds series 2013.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the county's full faith and credit and its ad valorem taxing power, without limitation as to rate or amount.

KEY RATING DRIVERS

DIVERSE ECONOMIC BASE: The diverse economic base provides substantial employment opportunities for county residents in a variety of higher wage sectors. Wealth levels are well above average.

STRONG FINANCIAL MARGINS: Strong financial performance has resulted in elevated fund balance levels that provide the county with ample financial flexibility.

AFFORDABLE DEBT LEVELS: Debt levels are moderate and affordable, and future borrowing plans are manageable.

WEAK PENSION FUNDING: Pension funding levels are below average but improving. The total unfunded actuarial accrued liability (UAAL) is a low percentage of the county's resource base, further mitigating concerns about low funding levels.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to the continuation of strong financial management and control policies which have produced favorable financial results and maintained considerable margins of flexibility.

CREDIT PROFILE

St. Louis County includes the affluent suburbs of St. Louis, but excludes the city proper, limiting vulnerability to urban social service responsibilities. It benefits from its proximity to the city of St. Louis, which serves as a major economic center for the region. The county contains just above one million residents over 524 square miles.

DIVERSE ECONOMIC BASE

St. Louis County has a well-developed economic base which continues to diversify away from manufacturing. The regional economy's employment base consists of a higher level of both professional services and educational and health services as a percentage of total employment than the national average. Major employers include Boeing Co. with roughly 14,900 employees, Washington University (14,100), and SSM Health Care System (11,900).

After several years of tax base weakness, assessed valuation (AV) is expected to begin to rebound given increases in home prices and development activity throughout the county. The tax base is diverse with the top 10 property taxpayers accounting for 5.5% of total AV. County unemployment remains low at 5.3% in November 2014, comparable to the state (5.1%) and nation (5.5%).

ABOVE-AVERAGE SOCIOECONOMIC PROFILE

County residents' wealth levels are above average with 2013 per capita income levels equaling 136% and 124% of the state and national levels, respectively. County residents are well-educated with 41% achieving higher education versus 29% for the national average.

STRONG FINANCIAL MARGINS

The county has exhibited strong financial performance with ending unreserved/unrestricted general fund balances exceeding 26% of spending for at least the last six years. The county consistently budgets conservatively then outperforms its budget. A $3.7 million net operating surplus, after transfers, was recorded in 2013, well ahead of the budgeted $31.8 million draw. Key drivers of the surplus were close expenditure management, 6% increase in sales tax revenue and refunding savings. The county ended 2013 with a $128.3 million unrestricted general fund balance, equivalent to a strong 37.2% of general fund expenditures.

Preliminary results for 2014 show an $18 million fund balance draw, well ahead of a budgeted $45.9 million draw. Sales tax revenue was up 17% as the county received a full year of a new park sales tax. However, the county incurred over $6 million of unplanned costs, largely for police overtime, in relation to the unrest in Ferguson. It also spent $9 million on one-time capital projects.

The 2015 budget includes a 3% wage increase, flat property taxes, and conservative assumptions for sales tax growth. The county currently expects to use $12 million of fund balance. The county routinely underspends its budgeted appropriations and its cash-basis projections often result in more favorable final results on a GAAP-basis; nevertheless, if the county were to realize its budgeted draw on general fund balance, reserve levels would still remain strong, well in excess of the policy goal of 10% of spending. Fitch expects reserves to remain elevated to maintain the 'AAA' rating.

MANAGEABLE LONG-TERM LIABILITIES

The debt burden is moderate as a result of strong internal capital funding practices. Overall net debt totals $2,132 per capita or 2.2% of full market value. Amortization is average at 45% in 10 years. Future borrowing plans are manageable.

The county offers pension benefits to all county employees and commissioned police officers through the St. Louis County, Missouri County Employee Retirement Plan, a single-employer defined benefit plan. The civilian portion of the plan has a 72.3% funding ratio, or a somewhat weak 65.2% when adjusted by Fitch to reflect a 7% discount rate. The police portion of the plan reports a 61.7% funding ratio, or a Fitch-adjusted 55.6%. After several years of declines, funding levels have gradually increased the last two years. The county makes 100% of its actuarially-determined annual required contribution each year. The combined UAAL for the two plans is low at less than 0.3% of market value, so potential increases in payments to improve funding should be manageable. The county has no other post-employment benefit (OPEB) liability. Carrying costs for pension and debt service are affordable at 11% 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, Zillow, 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=981072

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Contacts

Fitch Ratings
Primary Analyst
Eric Friedman
Director
+1 212-908-9181
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Arlene Bohner
Senior Director
+1 212-908-0554
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1 212-908-0833
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eric Friedman
Director
+1 212-908-9181
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Arlene Bohner
Senior Director
+1 212-908-0554
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1 212-908-0833
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com