NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AA+' rating to the following James City County, VA public facility revenue bonds:
--$26.75 million bonds (James City County School Project), series 2016 issued by the Economic Development Authority (EDA) of James City County.
The bonds are expected to sell on May 4 via competitive bid. The proceeds of the bonds will fund the cost of certain capital improvements for public school facilities.
In addition, Fitch affirms the county's Issuer Default Rating (IDR) at 'AAA' and affirms the following ratings:
--$48.2 million outstanding general obligation (GO) bonds at 'AAA'.
--$135.6 million lease revenue bonds at 'AA+' issued by the EDA.
Also, Fitch upgrades the county's lease revenue refunding bonds, series 2014 to 'AA+' from 'AA'.
The assignment of the IDR reflects application of Fitch's revised criteria for U.S. state and local government credits, which was released on April 18, 2016. The Rating Outlook is Stable. The revised criteria include more focused consideration of project factors in ratings for appropriation-backed debt; the series 2014 bonds do not carry any of the additional risk features that Fitch identifies for rating more than one notch below the IDR.
SECURITY
The bonds are secured by payments under the financing agreement and the financing lease which are subject to appropriation by the county board of supervisors.
KEY RATING DRIVERS
ANALYTICAL CONCLUSION: The 'AAA' rating reflects the county's demonstrated strong financial management both during and after the recession, low debt and pension liabilities, and strong financial flexibility.
James City County is located in southeastern Virginia, equidistant from Richmond and Norfolk. Population growth has been strong at 8.5% since 2010 compared to the state at 4.8% and the nation at 4.1%.
Revenue Framework: 'aaa' factor assessment
The county has strong revenue flexibility given the independent legal ability to increase property taxes without limitation. Recent growth in assessed value following declines and stagnant appreciation after the recession coupled with a tax rate increase in fiscal 2016 is expected to keep revenue growth above GDP.
Expenditure Framework: 'aa' factor assessment
The county has significant flexibility to control labor spending given the absence of collective bargaining. A portion of the property tax rate is allocated to capital spending which is an additional source of flexibility.
Long-Term Liability Burden: 'aaa' factor assessment
Long-term liabilities (excluding OPEB) to personal income are low. The county currently does not have any additional debt plans.
Operating Performance: 'aaa' factor assessment
After multiple years of operating surpluses during the recovery following the recession, the county has utilized a modest amount of reserves over the past several years for capital spending. Reserves still remain ample and above the county's reserve policy level.
RATING SENSITIVITIES
RATING STABILITY EXPECTED: The ratings are sensitive to shifts in the county's strong financial flexibility, including a long-standing history of strong financial management practices. The Stable Rating Outlook reflects Fitch's expectation that these shifts are unlikely.
CREDIT PROFILE
The county's economy is driven in part by tourism, and the county is home to or nearby a number of American heritage tourist attractions such as Colonial Williamsburg, the Yorktown Battlefield, and the Jamestown Settlement. Other attractions include the Busch Gardens amusement park and the Kingsmill Golf Course. Wealth levels are high with median household income comfortably exceeding the national average and moderately above the state average. Although a large portion of the county's employment base is seasonal, unemployment rates even during the off season are below the national average. The tax base has recently started to recover and forecasts look positive.
Revenue Framework
The revenue base of the county is dependent on property tax revenues, at 64% of general fund revenues. Remarkably, assessed value and property tax revenues declined only once (fiscal 2013) following the recession. Growth in sales tax revenues offset the declines and general fund revenues remained flat. Home values are recovering nicely and are currently approximately 87% of 2007 peak values.
Average growth in revenues over the last 10 years has been strong at twice the rate of inflation. The county increased the property tax rate in fiscal 2016 for the first time since 1996. The tax rate increase coupled with growth due to development and subsequent assessed value growth creates strong revenue growth prospects.
The 'AAA' assessment is also supported by the lack of legal limitation on the tax rate and levy, providing the county with significant revenue-raising authority.
Expenditure Framework
The county maintains healthy expenditure flexibility with moderate spending associated with fixed carrying costs. School spending is the largest expenditure item for the county. Given manageable enrollment growth, spending remained flat during the recession.
Fitch expects spending generally to remain in line with revenue growth and economic expansion. Following the recession, spending declined for three consecutive years followed by an increase in spending in conjunction with revenue growth.
The county maintains a significant level of expenditure flexibility due to the favorable workforce environment that prohibits labor contracts and gives management independent control of compensation and work rules. Carrying costs associated with debt service, actuarially determined pension payments and OPEB actual contributions total a low 14.8% of governmental spending. Costs are mainly comprised of debt service spending which reflects rapid amortization.
Long-Term Liability Burden
Debt levels are expected to remain low, based on the rapid amortization (80.2% in 10 years), lack of future borrowing plans and continued tax base growth. The county's five-year CIP is over $77.3 million and mostly funds the construction of a new school with proceeds from the current bond issuance.
All county employees are provided pension benefits through the Virginia Retirement System (VRS). The county annually contributes the actuarially determined contribution. The county's net pension liability is low at approximately $15.5 million (less than 1% of personal income) given the funded ratio of 90%. The county funds OPEB on a pay-go basis. The unfunded liability is minimal at less than $5 million. Overall debt and the unfunded pension liability as a percentage of personal income is a low 4%.
Operating Performance
The county's financial resilience comes from a combination of expenditure cutting and revenue-raising flexibility and maintenance of a strong, stable reserve cushion. Even an unaddressed moderate economic decline scenario shows an operating reserve cushion that Fitch judges to be consistent with a 'aaa' financial resilience assessment. Moreover, Fitch expects that in the event of such an actual revenue decline, the county would continue to maintain reserves at a significantly higher level through active expenditure management.
The county's strong reserve policy and expenditure controls during and after the recession resulted in a modest use of reserves followed by multiple years of operating surpluses while maintaining ample reserves above 19% of general fund spending. This is well above the prevailing 8% fund balance policy. In preparation for the next potential downturn the county prudently enhanced its reserve policy to 10% with a 12% target. Following the recession, the county continued to exercise conservative budgeting practices to hold spending flat. The county reduced capital spending and cut 10% of positions.
At fiscal year-end 2015, the unrestricted general fund balance was $34.3 million or 19.1% of general fund spending. According to management, year-to-date fiscal 2016 performance is positive relative to budget. Revenues are currently projected to be $2 million over budget due to positive variances in property, recreation and recordation taxes. Also, staff vacancies, $700,000 in budget contingencies, and employee turnover should add to surplus operating results at year-end.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis.
Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003499
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003499
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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