NEW YORK--(BUSINESS WIRE)--Fitch rates the following Chesterfield County, VA general obligation (GO) bonds 'AAA':
--$83.6 million in GO public improvement and refunding bonds, series 2016A.
The bonds are expected to price on the week of June 13 via competitive bid. Bond proceeds will be used to pay the costs of capital for school and public safety improvements and to refund certain outstanding GO bonds for debt service savings.
In addition, Fitch affirms the following ratings:
--$353.5 million in GO bonds at 'AAA';
--$36.2 million in outstanding certificates of participation (COP) at 'AA+';
--Chesterfield County's Issuer Default Rating (IDR) at 'AAA'.
Fitch also upgrades to 'AA+' from 'AA' the ratings on the following debt obligations of the Chesterfield County Economic Development Authority (EDA):
--$3.3 million public facility revenue refunding bonds series 2010A;
--$5.8 million taxable recovery zone economic development bonds series 2010B.
The Rating Outlook is Stable.
SECURITY
The GO bonds are general obligations secured by the full faith, credit and unlimited taxing power of the county.
The COPS are secured by lease rental payments subject to annual appropriation by the county and a lien on essential property.
The EDA revenue bonds are payable solely from payments made by the county under a support agreement, subject to annual appropriation. The EDA bonds do not have a security interest in the project.
KEY RATING DRIVERS
The 'AAA' IDR and GO rating reflects the county's robust financial management, as demonstrated by the solid maintenance of reserves, low debt and pension liabilities. The county's strong revenue and expenditure flexibility support Fitch's expectation for resilient operations going forward.
The upgrade of the EDA revenue bonds to 'AA+' reflects the application of Fitch's revised criteria for U.S. state and local government credits, which was released on April 18, 2016. The revised criteria include more focused consideration of project factors in ratings for appropriation-backed debt; the EDA revenue bonds do not contain any of the risks that Fitch identifies for a rating more than one notch below the IDR.
Economic Resource Base
Chesterfield County is located in east-central Virginia and participates in the Richmond/Petersburg MSA, which includes the state capital. The county has an estimated 2015 population of 335,687, which has grown by 5.8% since 2010. The county attracts a well-educated and highly skilled labor force to its growing and diverse employment base. Major industries in the area include manufacturing, product distribution, technology and health care sectors. Economic indicators remain strong, with unemployment below the national average and above average wealth levels.
Revenue Framework: 'aa' factor assessment
The county has strong revenue flexibility given its legal independent ability to raise property taxes without limitation. Operating revenues have increased at a relatively modest pace in recent years, boosted by increased assessed values. Revenue growth prospects are favorable due to recent growth trends and ongoing development. The county tax rate is slightly higher than other counties in the region.
Expenditure Framework: 'aa' factor assessment
The county achieved solid operating margins during the recession without having to make major reductions in service, providing considerable flexibility if needed. The county's expenditure flexibility is aided by both the absence of collective bargaining and moderate carrying costs.
Long-Term Liability Burden: 'aaa' factor assessment
Fitch expects long-term liabilities to remain low given manageable debt plans, rapid amortization and low unfunded pension liabilities.
Operating Performance: 'aaa' factor assessment
Strong financial management and planning has resulted in consistently positive financial operations and ample reserve levels. Fitch expects the county to continue to maintain solid operations and substantial gap-closing ability through an economic downturn.
RATING SENSITIVITIES
Maintenance of Reserves: Significant deterioration in financial reserves would indicate fiscal pressure inconsistent with the current rating. Fitch views this as unlikely, given the county's strong resource base and history of solid financial management.
CREDIT PROFILE
The county's favorable location and ample land provide solid growth prospects. The employment base continues to grow as its existing employers expand operations and new capital investments continue. The county has received $3.3 billion in capital investments since 2008 and estimates nearly $200 million in net investment and over 1,000 in new jobs for fiscal 2016. The county projects an additional $300 million of new projects in the near term.
The county's March 2016 unemployment rate of 3.8% was below the state and the nation, which is notably improved from the recessionary peak (7.3% in 2010). While home values declined during the recession, they've since recovered with annual growth since 2013. Zillow estimates home values will rise by an additional 2.2% within the next year, attributable to ongoing residential and commercial development and improving employment.
Revenue Framework
Property taxes comprise 55% of total general fund revenues. During the recession, revenues declined due to downward pressure on property values, but have since rebounded with positive annual growth since fiscal 2013. The gains have been due to both rising home values and ongoing residential and commercial development projects.
Historical general fund revenue growth over the past 10 years fell short of the national GDP and rate of inflation. However, post-recession revenue growth has been consistently positive. The county's revenue growth prospects are favorable due to the county's strong pipeline of development projects. The county benefits from broad revenue raising ability, as it is not subject to any limitation on its property tax rate or levy.
Expenditure Framework
The county maintains healthy expenditure flexibility with low fixed carrying costs. Fitch expects the pace of spending growth, over time to be in line with to marginally above revenue growth, absent policy action. Education is the county's largest expenditure category. During the recession, the county modified school funding levels to match available resources.
The county achieved positive operating margins during the recession without resorting to service reductions or other severe spending cuts, providing considerable flexibility if needed. The county reduced its annual pay-go contribution towards capital projects in 2012, but has since restored its contribution to 5% of general fund expenditures. Staff reductions were realized by maintaining vacancies and attrition. The county has the legal ability to fully manage workforce costs given the absence of collective bargaining. Carrying costs, which comprise total debt service, actuarially determined pension payment and other post-employment benefits (OPEB) actual contributions are moderate at 14% of fiscal 2015 governmental spending.
Long-Term Liability Burden
The county's overall debt burden is equal to a low 4% of personal income, attributable in part to a solid history of financing a portion of capital projects on a pay-go basis. Debt amortization is rapid with nearly 80% retired within 10 years. The county's 2017-2021 capital improvement plan (CIP) includes $565 million of general government and school projects, 44% of which will be financed with debt most of which was authorized pursuant to a 2013 bond referendum. Given the county's rapid amortization, the additional debt will not materially impact debt ratios.
Pension contributions to the Virginia Retirement System (VRS) as well as the county's supplemental retirement system equaled $28 million, or 3.7% of governmental spending in fiscal 2015. The county consistently funds at least 100% of the ARC. The county has attained full actuarial funding of its OPEB contribution and since fiscal 2008 has often exceeded its annual funding requirements. The fiscal 2015 OPEB annual required contribution was a minimal 1.3% of government spending.
Operating Performance
The county's operating profile reflects strong financial resilience, as evidenced by solid reserves and a high level of budget flexibility. Fitch expects the county would maintain reserves at or above the level that Fitch considers consistent with the 'AAA' rating in the event of an economic downturn.
The county's strong fiscal policies and conservative budgeting enabled it to sustain positive operating margins through the last recession. Reserves have been consistently maintained well above the county's fund balance target of 8% of spending. Fiscal 2015 ended with an operating surplus of $3.9 million or 0.6% of spending, and the unrestricted general fund balance equaled a strong $256 million or 36% of spending.
The fiscal 2016 budget represents a 2.5% increase from the prior year. The budget maintains the current tax rate and includes additional investments in public safety, education and maintenance of capital facilities. Preliminary year end projections indicate favorable results relative to the budget, with continued positive operations results benefiting from better than expected revenue performance.
The proposed fiscal 2017 budget is a similar 2.5% increase over the 2016 budget. The budget maintains the current tax rate and includes additional staffing for police, emergency medical services and a 2% merit increase. The budget is balanced with no use of reserves, aided by staff turnover savings, lower debt service costs and contract renegotiations.
The county's current multi-year financial forecasts show draw-downs in reserves. However, county officials have indicated that these calculations are meant to reflect spending priorities which may be scaled back to accommodate available resources. The projected deficits are largely the result of new capital facilities (two fire stations and a library) which are estimated for completion by 2020-2021. Fitch believes that the county's favorable historical financial performance and practice of conservative budgeting will produce results consistent with past performance.
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 and InvestorTools.
Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005641
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