NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for the following Lincoln County, North Carolina (the county) bonds:
--$75 million outstanding GO bonds at 'AA';
--$6 million certificates of participation (COPs), series 2006 at 'AA-'.
The Rating Outlook is Stable.
The GO bonds are general obligation of the county backed by its full faith and credit and unlimited taxing power. The COPs evidence proportionate and undivided ownership interests in the installment payments to be made by the county pursuant to an installment financing agreement between the county and the Lincoln County Public Facilities Corporation (LCPFC). The installment payments are subject to annual appropriation. The county executed a deed of trust granting a lien on a school facility.
KEY RATING DRIVERS
SOLID FINANCIAL RESULTS: Three years of audited positive operating results, contribute to sound reserves levels and ample liquidity. Property taxes are the dominant revenue source and the county has ample margin within its taxing limit. The absence of collective bargaining and practice of pay as you go capital financing contribute to expenditure flexibility.
FAVORABLE DEBT PROFILE: Debt levels should remain low, given manageable capital plans and rapid amortization of debt. Annual pension costs are largely related to the county's participation in the well-funded state plan, and overall carrying costs for debt and retiree liabilities consume a moderate portion of the operating budget.
LIMITED ECONOMY WITH EXPANSION POTENTIAL: A manufacturing-focused economy has seen favorable recent job growth but unemployment statistics tend to lag the North Carolina and U.S. benchmarks historically. Income metrics are mixed. The county continues to experience solid population growth, benefiting from its proximity to Charlotte.
APPROPRIATION RISK FOR COPs: The 'AA-' rating on the COPs reflects that annual installment payments equal to debt service are subject to appropriation. Mortgaged property consists of essential government assets, providing sufficient incentive to appropriate.
SOUND FINANCIAL PROFILE: Continued strong financial operations and favorable economic growth would be positive credit factors.
Lincoln County, with an estimated 2014 population of 79,829, is located in the western portion of North Carolina, approximately 30 miles northwest of the city of Charlotte (GOs rated 'AAA' with a Stable Outlook by Fitch).
PROXIMITY TO CHARLOTTE FUELS GROWTH
The eastern portion of the county, particularly the area around Lake Norman, has proven a desirable commuter suburb of Charlotte. Fitch believes that the county's proximity to Charlotte as well as its competitive tax rate enhances its intermediate and long-term potential for expansion. Population grew a sizable 23% in the decade ending 2010, but growth slowed to 2% from 2010 to 2014.
The county is served by strong highway access, and is home to several industrial parks. Arlie Business Park, which has close access to the Charlotte Douglas International Airport, recently expanded adding an additional 57 acres. The manufacturing sector is a key component of the local economy; newer business additions include medical supply, tire distribution and metal finishing concerns.
The medical sector and government have provided some stability to the county's employment base. Unemployment has shown strong improvement due to job growth. The 5% March 2015 unemployment rate is below the state and national rates of 5.4% and 5.6%, respectively. Both education and income levels are below national medians.
STABLE FINANCIAL POSITION
The county's financial profile is sound, underscored by conservative budgeting, favorable reserves and ample liquidity. Audited fiscal 2014 results show a $3.8 million general fund operating surplus (4.1% of spending). The unrestricted fund balance was solid at 17.3% of spending, with spending adjusted for bond refunding costs. Including the reservation for state statute, which includes most receivables, the available fund balance equaled 27% of spending. The county is in compliance with its fund balance policy to maintain available general fund balance at least equal to or greater than 15% of expenditures.
Fiscal 2015 revenues are reportedly tracking well, with favorable variances expected in property tax growth and sales taxes. The county anticipates closing fiscal 2015 with a modest increase to fund balance, outperforming the budgeted $4 million fund balance appropriation.
The adopted fiscal 2016 budget includes no appropriation of general fund balance. Revenue growth projections are conservative. Fitch believes that the county retains sufficient financial flexibility, given its competitive tax rate and the capacity to implement a variety of expenditure reductions, if required.
MODEST LONG-TERM OBLIGATIONS
The favorable debt profile includes low debt levels, moderate future capital issuances, and rapid amortization. The overall debt burden is $1,224 on a per capita basis and 1.2% of market value. Debt carrying charges consume a moderately high 14.2% of fiscal 2014 total governmental spending as a result of rapid principal pay-out at approximately 82% within 10 years.
Debt issuance plans include limited obligation bond (LOB) issuance in 2017 for a new government complex, and for building renovations to the courthouse and another government building. Project costs are currently being identified, but issuance is estimated at $20 million. The county reports that overall total school capacity is sufficient, but during fiscal 2016 redistricting will be reviewed to determine if issuance of the $13.5 million of authorized but unissued debt is needed for a high growth area. Given the rapid amortization of outstanding debt, issuance plans are manageable.
Employees participate in the well-funded statewide Local Governmental Employees' Retirement System. The county's fiscal 2014 contribution of $1.8 million equaled a modest 2% of governmental spending. In addition, the county administers retirement benefits for qualified sworn law enforcement officers. The county funds this plan on a pay-as-you-go basis, as is common across the state. Fitch takes comfort that the plan's unfunded liability of $1.4 million is minimal when compared to the county's resources.
Other post-employment benefit (OPEB) obligations do not pressure the credit. The county is funding the plan on a pay-as-you-go basis, and fiscal 2014 contributions totaled 0.6% of spending. The unfunded liability as of Dec. 1, 2012, totals $29.4 million and approximates 0.4% of market value.
APPROPRIATION RISK FOR COPs
The COPs are secured by installment payments made by the county to the trustee, as assignee of the LCPFC, which is a nonprofit corporation created to promote the general welfare of county citizens by assisting the county in financing public projects. Payments are equal to debt service on the COPs and are subject to annual appropriation. The LCPFC assigns its rights, title, and interest to the trustee including the right to receive the county's installment payments and its rights under the deed of trust, including the LCPFC's rights, title, and interest to the mortgaged property.
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.
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form