Fitch Affirms Cabarrus County, NC GOs at 'AA+'; LOBs and COPs at 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following ratings on Cabarrus County, North Carolina (the county):

--$107 million general obligation bonds (GOs), series 2004, 2006, and 2013 at 'AA+';

--$237 million certificates of participation (COPs)/limited obligation bonds (LOBs) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by the county's full faith, credit, and unlimited taxing power.

The COPs and LOBs are payable from lease payments subject to annual appropriation by the county and by a lien on various government assets.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: Financial operations are characterized by a conservative approach to budget development, timely revenue and spending adjustments, and steady compliance with reserve policies.

AFFORDABLE OVERALL DEBT PROFILE: Currently low debt levels may increase somewhat but should not pressure the credit. Debt servicing costs are high, but this risk is partially offset by rapid amortization. The size of a planned upcoming debt issuance is manageable.

PROXIMITY TO DIVERSE LABOR MARKET: The county's close proximity to Charlotte has aided its diversification into other highly skilled industries from a traditionally agriculture and textile-based economy.

APPROPRIATION LIEN ON COUNTY ASSETS: The 'AA' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments to be made by the county to the trustee, the generally essential nature of the respective leased assets, and the overall creditworthiness of the county.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong financial management. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Cabarrus County is located 18 miles northeast of Charlotte in the Piedmont region of North Carolina. The county has experienced rapid population growth over the past two decades, with its population growing 32% in the 1990s and 46% since the 2000 census, nearly twice as fast as the state.

SOUND SOCIOECONOMIC PROFILE

The county's economy has traditionally focused on agriculture and textile manufacturing. More recently it has benefited from its proximity to the broad and growing Charlotte economy, which has allowed it expand into distribution, biotechnology, entertainment, healthcare and retail.

Development of the North Carolina Research Campus, a 350-acre campus for biotechnology and nutrition research that employs 151 workers, underscores the county's continuing economic development. The county is also home to the 1.4 million square foot Concord Mills Mall, as well as the Charlotte Motor Speedway which hosts three NASCAR events each year.

The economy has faced some level of disruption, highlighted by the closure of the Phillip Morris plant in 2009 which had previously served as the county's top taxpayer and one of the top employers. The site, which employed 1,100 workers, is now under development by a battery manufacturer with projected employment of 500 workers by the end of the year. The unemployment rate, which was as high as 11.3% in 2011, declined steadily to 4.9% in December 2014. Furthermore, job growth is outpacing labor force growth and median household income is above both state and federal levels.

STRONG FINANCIAL MANAGEMENT

Cabarrus County has a solid history of conservative budgeting, and its strong reserve levels are evidence of prudent financial management. Fiscal 2014 operating results bettered budget projections with an operating surplus of $1 million (0.5% of expenditures). Results also included a $26.8 million use of fund balance that consisted mainly of a transfer to the capital reserve fund.

This transfer is consistent with the county policy of transferring excess unassigned fund balance to capital reserves, and represents amounts owed since the policy was suspended in 2008. A majority of the transfers out were used for construction of a new elementary school. After the transfers the unrestricted general fund balance totaled a healthy 21.9% of general fund spending, and the available fund balance is 27.3% of spending when the state's required reserve is included.

Property taxes are the county's largest revenue source, comprising 65% of operating revenues in fiscal 2014. The county's millage rate has remained unchanged for the past three fiscal years and at 70 cents per $100 of taxable assessed value (TAV) is well below the statutory cap of $1.50. The county continues to maintain an average tax rate when compared to neighboring counties.

The county's TAV has stabilized following a decline from the last quadrennial revaluation (effective fiscal 2013), and the county expects intermediate-term growth leading to the FY 2017 revaluation. Fitch considers this projection reasonable given economic activity. The fiscal 2014 TAV exceeded management's expectations, growing 5.2% to $19.7 billion.

Year-to-date results indicate revenues are expected to finish positive relative to the budget (driven mainly by increased property and sales taxes), while expenditures are expected to come in under budget. The county expects year-end actual results will use $5.7 million of fund balance due to a $5 million transfer for capital projects (continuing their capital transfer policy) and a re-appropriation from unspent fiscal 2014 projects. Fitch expects that reserves going forward will remain in compliance with current policies given the county's historically conservative budgeting practices.

MODERATE DEBT PROFILE

The county's debt levels are low at $1,866 per capita and 1.8% of market value. Debt service costs are elevated at 19% of governmental fund spending, partially because educational debt, but not operating costs, are included in the county's governmental spending. The elevated debt service cost also reflects above-average amortization of outstanding principal, with 73% retired within 10 years.

The fiscal 2015-2020 capital improvement plan totals $32.2 million between parks, schools, and public health with pay-as-you-go funding. Current debt plans include up to $100 million in 2016 for schools.

Pension and other post-employment benefit (OPEB) liabilities continue to be well managed. The county contributes to two defined-benefit retirement plans, including the well-funded state Local Government Employees' Retirement System (LGERS). For fiscal 2014 the annual OPEB pay-go contribution represented a low 0.5% of spending. The county's fiscal 2014 overall carrying costs for debt service, pensions and OPEB were a moderate 20.8% of governmental fund spending.

STRONG INCENTIVE TO APPROPRIATE

The COPs and LOBs are secured by lease payments made by the county pursuant to a deed of trust and a lien on mortgaged property subject to permitted encumbrances. Mortgaged property conveyed under the deed of trust includes schools, a jail, and several government buildings whose essentiality provides sufficient incentive to appropriate.

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=981807

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Contacts

Fitch Ratings
Primary Analyst
Parker Montgomery
Analyst
+1-212-908-0356
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Parker Montgomery
Analyst
+1-212-908-0356
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com