NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'AA' to the following revenue bonds issued by the Albemarle County, VA Economic Development Authority (the authority):
--$40 million public facility revenue bonds (Albemarle County project), series 2015B.
The bonds will be sold competitively on or about Sept. 15. Proceeds will finance various parks, school, fire and rescue and other general government capital improvements.
In addition, Fitch affirms the following ratings:
--$31.7 million of outstanding public facility revenue bonds (Albemarle County project), series 2013 at 'AA+' issued by the Albemarle County Economic Development Authority;
--Albemarle County's implied unlimited tax general obligation (ULTGO) rating at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable by basic payments made by the county, subject to annual appropriation, to the authority equal to debt service on the bonds according to trust and financing agreements. The series 2013 bonds are additionally backed by assets under a ground lease.
KEY RATING DRIVERS
COUNTY CREDIT QUALITY: The rating assigned to the authority's revenue bonds is based on the county's general creditworthiness, and factors in risk to debt payments that are subject to annual appropriation. The series 2015B bonds are not backed by a deed or mortgage on any physical assets which Fitch considers supportive of the incentive to continue to appropriate, resulting in a rating two notches below the county's implied ULTGO rating.
SOUND FINANCIAL TRACK RECORD: Balanced general fund operations have contributed to a healthy fund balance position that limits risk to unanticipated expenditure or revenue pressures.
REVENUE STABILITY: General fund operations are largely funded by property taxes, which the county has full authority to adjust without constraint by state law or county charter. The county's tax base is diverse and has proven to be fairly resilient.
HEALTHY ECONOMIC PROFILE: Anchored by the University of Virginia and the U.S. Department of Defense, the county has a very well educated labor force and economic metrics are strong, including high levels of wealth and consistently low unemployment.
LOW DEBT: Debt metrics are low, debt is repaid rapidly, and future needs are considered affordable by Fitch. Liabilities related to pension and retiree health costs are manageable, as is the cost of funding debt and retiree obligations in the annual budget.
RATING SENSITIVITIES
MAINTENANCE OF STRONG FINANCIAL MANAGEMENT: The rating is sensitive to changes in the county's strong financial operations and management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Albemarle County is located in north central Virginia. The county is approximately 120 miles southwest of Washington D.C. and 75 miles northwest or Richmond. Interstate 64 traverses the county through Charlottesville. The county's population continues to expand at a solid pace, presently standing at 104,489 in 2014.
UVA AND DEFENSE INDUSTRY ANCHOR ECONOMY
The University of Virginia (UVA) is predominantly located within Albemarle County. The university (general revenue pledge bonds rated 'AAA' by Fitch) is recognized as one of the country's elite public colleges and universities, with prestigious graduate programs including the Darden School of Business, the McIntire School of Commerce and the School of Law. UVA has a total enrollment of 23,732 and approximately 12,090 full-time employees.
The University Foundation's research park (562-acres) is home to 20 businesses that employs over 1,300 and center on advanced biotechnology, cyber security, and military intelligence support. The research park leverages a sizable defense industry presence within the county that includes the Defense Intelligence Agency and the National Ground Intelligence Center as well as private sector contractor Northrup Grumman.
Other major employers represent the health care industry (UVA/Blue Ridge Hospital, Martha Jefferson Hospital), insurance (State Farm), retail (Wal-Mart, Harris Teeter), and manufacturing (GE Intelligent Platforms).
FAVORABLE EMPLOYMENT AND INCOME METRICS
The county's employment base has expanded at a compound annual growth rate (CAGR) of 1.3% from 2005-2014, outperforming both the state (0.8%) and U.S. (0.4%) during the period. During this period there was some contraction likely as a result of softness in the government sector, but the county's rate of unemployment as of May remains low at 4.4%.
The stability of major employers contributes to the solid performance of the county economy. Still a large number of residents commute outside of the county for work, mainly to the city of Charlottesville and to a much lesser extent Fairfax County. The county has a very well educated labor force, with 52% of residents having earned a bachelor's degree or higher (the national standard is 28%). County residents also earn high wages, with per capita money income equal to 111% of the state and 132% of the nation.
HEALTHY GENERAL FUND POSITION
The county's general fund operating profile is favorable, as it reflects a history of balanced operations, healthy reserves, a stable revenue base mainly comprised of real property taxes, and a competitive tax rate. Expenditure flexibility is enhanced by the relatively affordable fixed costs associated with debt and pension liabilities (9% of governmental spending in fiscal 2014), and an absence of collective bargaining pressures.
Following five consecutive operating surpluses the county posted a modest $943 thousand (0.4% of spending) and $2.2 million (0.96% of spending) deficit after transfers in fiscal 2013 and 2014, respectively to the capital projects fund. The unrestricted fund balance in fiscal 2014 was $36.5 million 15.8% of spending, above the county's 10% reserve policy. General fund cash and investments are a strong $28 million or 2x total liabilities in fiscal 2014.
The fiscal 2015 budget was a 4.6% increase over fiscal 2014 and included a 3.3 cent tax rate increase and $1.2 million use of fund balance. The budget funds new libraries, increased police staffing, improved fire rescue services, and a continued commitment to providing the school system with 60% of the county's growth in revenues. Year-to-date operating results are positive relative to budget. The fiscal 2016 budget is a 4% increase over fiscal 2015 and includes a two cent tax rate increase. The budget continues to fund initiatives outlined in the fiscal 2015 budget and appropriates approximately $1.3 million of fund balance.
STABLE TAX BASE, REVENUE PERFORMANCE
Property taxes account for approximately two-thirds of a stable general fund revenue stream. The county's tax base for fiscal 2015 was almost $16.9 billion, up 4% from the prior year, and equal to a healthy $161 thousand per capita. Management has ample revenue raising authority, as property taxes are not limited by state law or county charter. The county's tax rate is also competitive within the region and the tax base is very diverse (the top 10 taxpayers are only 5% of assessed value).
LOW DEBT METRICS
The county's overall debt burden is low at $1,833 per capita or 1.4% of market value. The county repays its outstanding debt very rapidly (70% in 10 years) affording it good flexibility to address future capital needs. The five-year capital improvement plan (CIP) totals a manageable $156.6 million, largely focused on public safety projects and school maintenance projects. The plan is 70% debt funded which is not expected to materially impact debt metrics.
AFFORDABLE PENSION COSTS
The county participates in the Virginia Retirement System (VRS), an agent cost sharing multiple employer pension plan. The county portion of VRS was 75% funded as of the 2014 actuarial report and the unfunded actuarial accrued liability (UAAL) of $38.4 million represents a very modest 0.2% of market value. Further, the county consistently contributes the full actuarial required contribution (ARC) to the plan, which at $5 million in fiscal 2014 consumes only 2% of governmental fund spending.
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
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990416
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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