NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Carroll County, MD general obligation (GO) bonds:
--$20.375 million consolidated public improvement and refunding bonds of 2016.
The series 2016 bonds are expected to sell on a competitive basis Nov. 10, 2016. Proceeds of the bonds will be used to finance certain capital projects and to refund certain outstanding county GO bonds.
In addition, Fitch affirms the following county ratings:
--$290.5 million GO bonds at 'AAA';
--Issuer Default Rating (IDR) at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from the county's full faith and credit taxing power, for which the county is empowered and directed to levy unlimited ad valorem taxes.
KEY RATING DRIVERS
The 'AAA' IDR and GO ratings reflect the county's broad resource base, strong growth prospects, ample reserves, and robust financial resiliency.
Economic Resource Base
Carroll County, located in north-central Maryland, covers 452 square miles and is within the Baltimore metropolitan area. With a 2015 population of 167,627 the county's population has increased by an average annual rate of less than 1% since 2010.
Revenue Framework: 'aaa' factor assessment
Revenues have been increasing at a pace above U.S. GDP and inflation, and Fitch expects this trend to continue. The county has the independent legal ability to raise property tax revenues in an unlimited amount.
Expenditure Framework: 'aa' factor assessment
Education drives the county's spending needs, and any reduction would require approval from the state. As such, the county's ability to make spending cuts when needed is somewhat limited, although fixed carrying costs related to debt and pensions are moderate.
Long-Term Liability Burden: 'aaa' factor assessment
The county's long-term liability burden is low. Future debt needs are manageable, and amortization of existing debt is rapid.
Operating Performance: 'aaa' factor assessment
Fitch expects the county to maintain a high level of financial flexibility throughout economic cycles based on its expenditure and revenue flexibility and conservative fund balance policy; solid economic and revenue prospects enhance this assessment.
RATING SENSITIVITIES
MAINTENANCE OF STRONG FINANCIAL PROFILE: The rating assumes the county's continued strong financial flexibility, revenue growth prospects and budget controls.
CREDIT PROFILE
The local economy contains a mix of manufacturing, industrial, service, and agricultural businesses. Examples of employers with headquarters or major presences in the county include Random House and Jos. A. Bank Clothiers. Additional significant employers in the county are two hospitals, two retirement communities, and two colleges.
Future economic growth prospects are favorable, which should extend a recent trend of employment gains and low unemployment. Fuchs North America, a leading maker of seasonings, is currently completing a 240,000 square foot corporate headquarters in the county. Total investment including site development and equipment is over $40 million, and Fuchs is expected to employ over 180 people at completion in November 2016. Lehigh Hanson Cement, the county's fifth largest taxpayer, is continuing to build a 4.7-mile conveyor system to transport limestone from Lehigh Cement Co.'s New Windsor quarry to its Union Bridge facility. The $200 million project is expected to be fully-operational by 2018.
Revenue Framework
Property taxes are the largest revenue source for the county at 58% of general fund revenues in fiscal 2015, followed by income taxes at 38%. After five consecutive years (2011-2015) of declines in assessed value (AV), the county has experienced two years of AV gains. The fiscal 2017 budget projects a $19.1 billion estimated market value (up 2% from last year), based on the rolling three-year reassessment cycle and aided by new construction. Income tax revenues have increased for six consecutive years. The fiscal 2017 budget projects a modest increase of 2% in income tax receipts.
The county's general fund revenue growth has trended above inflation and U.S. GDP growth, increasing at a 10-year compound annual growth rate (CAGR) of 3.6% through fiscal 2014; this period included several tax rate reductions. Given ongoing economic development as well as positive housing trends, revenue growth prospects are positive.
Property tax revenues and rates are not subject to a cap. The income tax rate was last increased in 2004 to 3.05%, which is below the maximum rate of 3.2%.
Expenditure Framework
The county's largest expenditure category is education at roughly 52% of general fund expenditures, followed by public safety at 12%.
Based on the county's history of structural balance and no immediate significant spending pressures, Fitch expects spending growth to remain in line with revenues.
The county's workforce is not currently unionized, providing broad flexibility to manage labor-related costs. According to the state's maintenance of effort (MOE) mandate, education spending cannot decline year-over-year without state approval, limiting the county's ability to reduce spending. The county's fixed cost burden is affordable, with carrying costs for debt, pensions (including the normal cost for teachers' pensions), and other post-employment benefits (OPEB) equaling 15% of fiscal 2016 governmental unaudited expenditures; the debt service component accounted for 10% of the total. The 10-year principal amortization rate is rapid with more than 70% of principal retired in 10 years (including the current issuance).
Long-Term Liability Burden
Overall net debt plus the county's unfunded pension liability is low at approximately 4% of personal income. The county's fiscal 2017-2022 capital plan totals $392.5 million, including enterprise fund projects. While the plan is funded with over $173 million of tax-supported bonds, Fitch expects the debt burden to remain low.
Fitch does not expect pension liabilities to pressure future operations. The county provides pension benefits to its employees through the county employee pension plan, and to police officers and volunteer firefighters through the county certified law officers' pension plan and volunteer fireman pension plan; the county also contributes to the statewide pension system for teachers' normal costs. As of the most recent valuation, the aggregate unfunded liability was $3.1 million and the plans were 96% funded.
OPEB liabilities do not represent a cost pressure. The county has continued to nearly fully fund the actuarially determined contribution. As of the last valuation report, the UAAL was approximately $97 million or about 1% of personal income and the obligation was 33% funded.
Operating Performance
Given the county's superior inherent budget flexibility (in the form of control over revenues and spending capacity), Fitch expects the county to manage through economic downturns while maintaining a high level of financial resiliency. The unrestricted general fund balance of $46.2 million at fiscal 2015 year-end was a healthy 12.6% of spending - a level of financial cushion comfortably higher than that required for a 'aaa' financial resilience assessment.
The county proved its financial resilience and strong budget management through the most recent recession by freezing salary increases, eliminating positions, and postponing capital spending (among other tactics). Fitch expects the county to make similar operational changes as needed during future economic downturns.
The county's fiscal 2017 general fund budget is $388.4 million or a 2.2% increase over fiscal 2016. The increase in ongoing revenue is derived by growth in property, income and recordation taxes. As such, the county was able to leave the tax rate unchanged for a fifth consecutive year. The budget increase primarily funds salary increases for teachers and sheriff's office employees and funds 12 county positions that were previously eliminated. Fitch expects operations to be balanced going forward and reserve levels to remain healthy.
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/site/re/879478
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014264
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https://www.fitchratings.com/regulatory
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