Fitch Rates Roanoke County, VA's $35MM Lease Revenue Bonds 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns the following rating to Roanoke County (the county), VA:

--Up to $45 million Economic Development Authority of the County of Roanoke, VA lease revenue refunding bonds series 2015

The bonds are expected to sell through negotiation the week of Aug. 3. Bond proceeds, which could be up to $45 million depending on market conditions, will be used to refund a portion of the series 2008 lease revenue bonds for debt service savings.

In addition, the following rating is affirmed:

--$49 million Economic Development Authority of the County of Roanoke, VA lease revenue bonds (public facility projects) series 2008 at 'AA'.

The Rating Outlook is Stable.

SECURITY

The lease revenue bonds are secured by a pledge of basic rent payments made by the county, subject to annual appropriation, pursuant to a financing agreement between the county and the Economic Development Authority (EDA). Further pursuant to a leasehold deed of trust, the EDA has granted a lien for the benefit of the trustee on certain essential government assets.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE AND SOUND RESERVES: Financial performance has been consistently strong as a result of sustained positive financial management and controlled expenditure growth resulting in strong reserve levels and ample liquidity.

DIVERSE REGIONAL ECONOMY: The county and adjacent city of Roanoke, serve as a regional hub underpinned by strong transportation and medical sectors. The broad county employment base has maintained a low unemployment rate with income levels that compare favorably to national levels.

STABLE TAX BASE: Taxable assessed valuation (TAV) experienced a minimal 2% decline during the economic downturn, and began a trend of growth in fiscal 2014.

MODERATELY LOW DEBT: Overall debt levels are expected to remain moderately low due to the county's commitment to a combination of moderate debt issuance and pay-as-you-go capital funding.

APPROPRIATION DEBT LIEN ON ESSENTIAL ASSETS: The lease revenue bonds are subject to annual appropriation. Essential government assets subject to a lien provide sufficient incentive to appropriate.

RATING SENSITIVITIES

MAINTENANCE OF RESERVES: The county's history of maintaining a strong financial position indicates continued rating stability. A material decline in financial reserves could pressure the rating.

CREDIT PROFILE

Roanoke County is a member of the Roanoke metropolitan statistical area a regional transportation and medical hub. County population growth has been steady, increasing by about 0.7% annually over the past decade to 93,785 in 2014.

A DIVERSIFYING ECONOMY

Continued industrial and commercial development activity has historically driven population growth and provided healthy tax base stability. While overall development has been moderate, it has diversified the traditional manufacturing base to include higher wage research and development and high-technology manufacturing. Several expansions and additions have recently been announced, including a significant expansion by the largest private employer, Wells Fargo's call center and back office operations.

Construction activity has seen an uptick in the past three years and several recent announcements bode well for continued growth. Building permit activity for 2015 shows a continued increase. Residential property values, which were only moderately affected during the recession, are showing improvement. Modest tax base growth has enabled the county to maintain a stable tax rate. Leading taxpayers are a diverse mix of utilities, residential developments, retail and manufacturers, with the top 10 comprising a low 4% in 2014.

The Roanoke MSA provides an employment level of over 150,000, with approximately a quarter of the jobs in the county. The county's economic resilience is shown in consistently strong employment levels: unemployment reached a high of only 6.3% during the recession. The county's March 2015 unemployment rate is a very low 4.3%, well below the national average of 5.6%. Wealth indicators are solidly above national levels. The poverty rate is a low 6.6%, well below the national rate of 15.4%.

SOUND FINANCIAL PERFORMANCE

Financial management is strong, as reflected in sound reserve levels, detailed planning, and stringent expenditure controls. The county routinely meets its financial reserve policy, which is maintaining a reserve of 11% of the following year's budgeted general fund revenues. In fiscal 2014, after transferring $5 million to the capital projects fund, the county concluded with a $.5 million use of reserves (0.3% of spending). The unrestricted general fund reserve of $36 million is a sound 19.1% of expenditures.

Fiscal 2015 general fund operations are projected to close with no significant change in total fund balance and adherence to the reserve policy of an unassigned balance equal to 11% of the fiscal 2016 budgeted expenditures.

The fiscal 2016 budget is a 2.6% increase from the prior year budget and is largely funded from growth in the tax base; the tax rate remains the same. The budget is balanced with no use of reserves. In conformance with the county's fiscal policies, the budget includes a $.5 million increase in the unassigned fund balance. The budget provides for a 2.5% employee pay increase and a 1.1% increase in the transfer to schools.

MANAGEABLE DEBT PROFILE

The county's debt profile benefits from adherence to conservative policies. Its debt burden has remained consistent at a moderately low $2,060 per capita and 2.1% of market value. The county's debt service expenditures were below its internal target of 10% of general fund and school board expenditures. Fitch calculates debt service as a percent of total governmental spending which was a moderate 9.6% for fiscal 2014. Principal is retired at an above average 59% within 10 years.

Future capital needs are affordable. The county's 10-year capital improvement plan (CIP) for 2016-2025 totals $147 million, including school needs of $83 million. No borrowing is planned over the coming two years, the next issuance is $24 million in fiscal 2018. Total borrowing over the 10 years is estimated at $95 million, and is less than the amount maturing. Given the level of maturing debt and the growing tax base, additional planned borrowing should be manageable. The county prudently sets aside funds to be used for pay-as-you-go capital financing.

AFFORDABLE LONG-TERM LIABILITIES

County employees participate in the state-administered Virginia Retirement System (VRS), an agent plan. The county makes annual payments as determined by the state that equal its annual required contribution (ARC). As of the June 30, 2014 actuarial report, the unfunded actuarial accrued liability (UAAL) was a moderate $44.9 million (.4% of full value of real property) and the funded ratio was 78.9%. The system utilizes a 7% investment return assumption, in line with Fitch's standard adjustments to pension system liability calculations for other governments.

The county offers other post-employment benefits (OPEB) and fully funds its ARC. At June 30, 2014, the OPEB UAAL was a minimal $8.4 million, the plan's funded ratio was 32.6%. Total county carrying costs (pension, OPEB and debt service) for fiscal 2014 totaled a modest 12.5% of general government expenditures.

LEASE REVENUE BONDS INCLUDE LIEN

Payments supporting lease revenue bonds are subject to annual appropriation by the county, pursuant to a financing agreement between the county and the EDA. Further security is provided by a leasehold deed of trust granting a lien by the EDA for the benefit of the trustee on its leasehold interest. The series 2008 and 2015 bonds are on parity and have a lien on a recreation center, library, vehicle fleet maintenance facility and a fire station. The series 2008 bonds have a standard debt service reserve fund in the form of a surety; no debt service reserve is planned for the series 2015 bonds.

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 Group, State of Virginia.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988589

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Contacts

Fitch Ratings
Primary Analyst
Patricia McGuigan
Director
+1-212-908-0675
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:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Patricia McGuigan
Director
+1-212-908-0675
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:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com