SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Marin County, CA (the county) obligations:
--$106.1 million pension obligation bonds (POBs), series 2003 at 'AA+';
--$10.8 million certificates of participation (COPs), series 2001 at 'AA+';
--Implied unlimited tax general obligation (ULTGO) rating at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The taxable POBs are backed by an absolute and unconditional pledge of the county imposed by law, the payment of which is not limited to any special source of funds. The COPs are backed by the county's covenant to budget and appropriate lease rental payments for the use and occupancy of a 46,000 square foot building on 12.3 acres in San Rafael that houses the Health and Human Services Department.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The ratings reflect the county's strong and consistent financial position, achieved through sound management practices and ability to match revenue declines with spending cuts.
AFFLUENT COMMUNITY: The county's strong and stable economy benefits from its location just north of San Francisco and very high wealth levels.
STABLE, STRONG TAX BASE: The primarily residential tax base has remained remarkably stable through the recession, declining modestly only one year before increasing each of the last four.
MODERATE DEBT BURDEN: The debt burden is moderate and expected to increase only modestly with an additional borrowing expected in the near term. The county has manageable carrying costs for debt and retiree liabilities.
ADDRESSING RETIREMENT OBLIGATIONS: Over the last several years, the county has prudently taken actions to prefund its retiree healthcare benefit and pension liabilities to reduce future annual required contribution (ARC) payments.
GENERAL FUND OBLIGATIONS: The COPs and POBs are rated one notch below the ULTGO rating as they are payable solely from any legally available funds.
RATING SENSITIVITIES
The COPs and POBs are sensitive to shifts in the county's implied GO rating to which they are linked.
The implied GO rating is sensitive to shifts in fundamental credit characteristics, including the county's strong reserves and financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The county covers 520 square miles (population 258,365) just north of the Golden Gate Bridge, within commuting distance to San Francisco, Oakland, and Silicon Valley, and provides access to the wine country destinations of the Sonoma and Napa Valleys.
AFFLUENT COMMUNITY; STABLE TAX BASE
Marin County is a very wealthy region. Per capita income is almost twice the national average across its 11 cities and towns including, Belvedere, Corte Madera, Fairfax, Larkspur, Mill Valley, Novato, Ross, San Anselmo, San Rafael, Sausalito, and Tiburon. Taxable assessed value (TAV) per capita is a high $241,000. Approximately 75% of the land area is set aside for open space, agriculture, or park land and the coastal and inland valley areas provide agricultural production, tourism, and recreation. Major draws include the Marin Headlands, Mount Tamalpais, Muir Woods, and Point Reyes National Seashore.
Marin benefits from access to the San Francisco metropolitan statistical area (MSA) employment base and a diverse job base of its own. Unemployment of 3.9% as of November 2014 remains well below the San Francisco MSA (5%) and state (7.1%) averages.
The tax base has declined only one year since 2007 (just 1.3% in fiscal 2011). Since then, it has increased 12.3% through fiscal 2014 to a high of $62.2 billion. The county estimates a 5.5% increase for fiscal 2016. According to Zillow, the median home price in Marin County as of January 2015 was $906,600, 3.3% above its prior peak in 2006. Due to the primarily residential nature of the tax base, there is no taxpayer concentration.
STRONG FINANCIAL PERRFORMANCE
The county's financial operations have historically been strong. Ample financial flexibility is evident in above-average reserve levels, consistent cash funding for capital and proactive use of reserves to reduce long-term liabilities. The county posted a $14.6 million general fund surplus in fiscal 2014 (3.7% of spending) after two years of deficits. A $56.6 million deficit in fiscal 2013 was due to large lump sum payments to prefund its other post-employment benefits (OPEBs) and pension liabilities. An $11.5 million operating deficit in fiscal 2012 was primarily due to a one-time $26 million transfer out for purchase of land and a building related to emergency operations facility (sheriff operations, information services technology, and 911 dispatch).
The fiscal 2014 year-end unrestricted fund balance (sum of committed, assigned, and unassigned), stood at a strong 27.8% of spending and transfers. Fitch notes with some concern that publication of county audits for the last seven years have been delayed beyond the standard six months following the fiscal year close with the most recent audit completed seven months after fiscal year close and board approval expected at nine months. The delay is largely due to issues with the county's data system, which the county expects to correct with the implementation of a new system by 2016. Importantly, unaudited data presented to Fitch is typically very consistent with audited statements.
The fiscal 2015 budget is balanced with the use of fund balance as is the forecast for fiscal 2016. The county typically budgets but does not use reserve spending due to conservative revenue estimates as well as vacant positions savings. The county adopted a long term restructuring plan in January 2010 to address anticipated structural gaps. Through the current fiscal year, the plan's implementation has resulted in a reduction in workforce by over 200 positions (11%) largely through attrition and elimination of vacancies as well as a voluntary separation incentive program offered for several years, and adoption of a lower-cost retiree health plan and pension tiers for new employees.
MODERATE DEBT BURDEN
Overall debt is moderate at 2.3% of TAV or $4,940 per capita, including overlapping entities, and expected to decline with no additional planned borrowing. Amortization is moderate, with 45% of principal retired within 10 years. The county appropriates $8 million per year for facilities maintenance needs and currently has about $75.4 in restricted and committed fund balance for capital projects. The county is planning to issue approximately $30.5 million in additional debt to fund replacement of the civic center roof among other projects.
Its five year capital improvement plan totals $149.7 million, including $20 million in facility improvements and $57.5 million in road maintenance. Flood control projects comprise $52.5 million funded through a dedicated tax with no general fund impact. Nearly $20 million in airport improvements are dependent upon the future receipt of grant revenues. The county's carrying costs, including debt service, pension annual required contribution (ARC), and OPEB paygo, are moderate at about 17.5% of total governmental expenditures in fiscal 2014.
PRUDENT STEPS TAKEN TO ADDRESS PENSION & OPEB
Fitch views positively the actions taken by the county to address its pension and OPEB liabilities. The county's unfunded liability related to OPEB was $335 million (as of July 1, 2013) with a fiscal 2014 ARC of $24.4 million. The county transferred a total of $26.4 million from reserves to an irrevocable trust with the California Public Employees' Retirement System (CalPERs) in fiscal year 2013. In addition, the county paid the full ARC for fiscal 2014 and plans to continue to do so going forward. The county created a new tier effective for employees hired on or after Jan. 1, 2008 that caps annual benefits at a dollar amount based on years of service.
The county's pension system, which is managed by the Marin County Employees' Retirement Association (MCERA), has a funded ratio as of June 30, 2013 of 74% using a Fitch adjusted 7% rate of return. The county's pension ARC has increased to 27.8% of payroll in 2014 from 15.9% in 2008. In fiscal 2013, the county utilized $30 million of reserves to reduce the liability and future ARC payments. The county implemented a reduced pension tier for new hires for some employee bargaining groups effective in fiscal 2012.
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.
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=981957
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