Fitch Affirms Mecklenburg County, NC's LOBs at 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned the following rating to Mecklenburg County, North Carolina (the county) limited obligation refunding bonds (LOBs):

--$74.53 million refunding LOBs, series 2015A 'AA+';

--$43.16 million refunding LOBs, series 2015B 'AA+'.

Proceeds of the series 2015A LOBs will refund a portion of the 2009LOBs and proceeds of the series 2015B LOBs will refund a portion of the 2009A COPs for debt service savings. The general obligation (GO) bonds are scheduled to price via negotiated sale on March 25.

The Rating Outlook is Stable.

SECURITY

The LOBs are payable from lease rental payments made by the county, subject to annual appropriation. The LOBs are additionally secured by a deed of trust granting a lien of record on essential government assets.

KEY RATING DRIVERS

ROBUST ECONOMY: Mecklenburg County's economy benefits from a substantial financial sector and associated professional services. A growing presence in the energy sector complements a diverse employment base that includes high technology and healthcare. Prospects for continued economic expansion are excellent.

IMPROVED DEBT PROFILE: Proactive financial management has tempered a historically high debt burden and intends to limit future debt in conformance with affordability policies. The county has also significantly reduced its variable rate exposure.

STRONG FINANCIAL PROFILE: The county's favorable financial operations and high reserves provide a cushion against unforeseen budgetary challenges or emergencies. The county's diverse revenue base is led by property taxes. While the tax rate is high it is well within the statutory cap.

APPROPRIATION LIEN ON ESSENTIAL ASSETS: The LOBs' rating reflects the lesser commitment than a general obligation of an annual appropriation pledge, and a lien on essential government assets.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: 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

Mecklenburg County is located in south-central North Carolina on the South Carolina border. The county encompasses an area of 546 square miles. With a population of 990,977 it is the most populated county in North Carolina.

CONSIDERABLE ECONOMIC BASE

Mecklenburg County's robust economy provides consistent credit strength, buttressed by financial and professional services that are supplemented by a growing presence in energy production, tourism, high-technology manufacturing, and health and education. Anchored by the city of Charlotte (GOs rated 'AAA', Stable Outlook by Fitch), with a transportation infrastructure supported by Charlotte-Douglas International Airport (revenue bonds rated 'A+', Stable Outlook), the diverse economy contains the second largest financial center in the U.S. and more than 291 Fortune 500 companies have locations within the MSA. The economy continues to diversify and expand with over $616 million in capital investment during calendar year 2014.

The strong employment base has helped fuel the county's rapid population growth to 990,977, representing about an 8% increase since the 2010 census, well above the nationwide 3% growth. Median household income is well above the state average and on par with the national average. As a result of the employment base continuously expanding since 2010, the December 2014 unemployment rate of 5.1% is below the national average of 5.6% for the first time since 2006.

STRONG FISCAL MANAGEMENT MARKED BY AMPLE RESERVE LEVELS

Financial operations are characterized by prudent fiscal management marked by maintenance of sound reserves. During fiscal 2014, general and debt service fund operations after transfers resulted in a net surplus of $120.7 million (9.4% of spending). After four consecutive operating surpluses, the unrestricted general and debt service fund balance increased to $557.2 million or an ample 43.3% of spending. When factoring in the state required fund balance restrictions for certain receivables to be comparable with fund balance presentation in other states, reserves equaled 51.2% of spending.

The fiscal 2015 budget is a 4% increase over fiscal 2014 budget. The budget keeps the tax rate unchanged and includes a $35 million fund balance appropriation to fund various general government and school capital projects. Although fund balance may decline, the county historically budgets conservatively and reserves are expected to remain in line with the county's sound 28% reserves policy. Year-to-date operations are tracking inline with the budget.

MODERATE OVERALL DEBT BURDEN

The county's debt levels are expected to remain moderate and within the county's internal guidelines. Direct debt ratios at 1.5% of assessed value (AV) and $1,725 per capita are well within policy guidelines which restrict debt-to-AV to 2% and debt per capita to $2,000. Overall debt levels are moderate at $4,236 per capita and 3.7% of AV.

Debt amortization is high at about 80% retiring in 10 years, in compliance with conservative county policy of 64%. With rapid amortization debt service costs for fiscal 2014 were high at 15% of total governmental spending.

The county has reduced its variable-rate debt exposure from a high of 46% of total debt to a manageable 16% in the last four years. The county's revised debt guidelines are more conservative and limit variable-rate debt exposure to 20%.

The 2015-2019 capital improvement plan totals $914.6 million. The majority of the plan funds education-related projects. The plan will be funded with future debt issuances of about $100 million annually, pay-as-you-go financing equal to three cents of the property tax rate, and a portion of excess fund balance in the debt service fund.

Long-term obligations associated with pensions and other post-employment benefits (OPEB) are limited. The county contributes 100% of its ARC to the statewide cost-sharing multi-employer defined benefit Local Government Employees' Retirement System (LGERS), which totaled just 1.2% of fiscal 2014 total governmental spending. The plan is well funded at approximately 97% after Fitch adjusts the discount rate to 7%. Additionally, the county contributes to various supplemental retirement plans with a total fiscal 2014 cost of $1.6 million.

After reaching a funded ratio of 100% in 2008, the county cut back OPEB funding to the pay-go amount beginning in 2011. For fiscal 2014, the county contributed $16.6 million or 1.1% of 2014 spending. As of 2013, the unfunded actuarial accrued liability was $335.5 million or less than 1% of AV. Overall carrying costs for debt service, pension and OPEB were affordable at 17.5% of spending in fiscal 2014, in large part due to modest retiree benefit costs.

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, Virginia Employment Commission.

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=981204

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Contacts

Fitch Ratings
Primary Analyst
Evette Caze
Director
+1 212-908-0376
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1 212-908-0833
or
Committee Chairperson
Amy Laskey
Managing Director
+1 212-908-0568
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Evette Caze
Director
+1 212-908-0376
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1 212-908-0833
or
Committee Chairperson
Amy Laskey
Managing Director
+1 212-908-0568
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com