NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA' Issuer Default Rating (IDR) for King George County, Virginia (the county).
The Rating Outlook is Stable.
SECURITY
There is no underlying Fitch rated debt.
KEY RATING DRIVERS
The 'AA' IDR reflects the county's superior financial resilience along with the notable economic role of the military and auxiliary contractors. Limited future debt plans support a low long-term liability burden and contribute to stable and manageable carrying costs. The rating also incorporates ample reserve levels, the unlimited legal ability to raise property tax revenues, and conservative financial management that positions the county to maintain health reserves throughout the economic cycle.
Economic Resource Base
King George County is located east of Fredericksburg, VA, approximately 60 miles from both Washington D.C. and Richmond, VA. The 2015 resident population, estimated at 25,515, increased by over 40% from 2000 to 2010, reflecting the availability of affordable homes near the employment centers of northern Virginia; subsequently, the growth rate has slowed but still exceeds that of both the state and the nation. A specialized military base anchors the county's stable but somewhat concentrated economy and employment base. The tax base has nearly recovered to pre-recessionary levels after a mild downturn.
Revenue Framework: 'aa' factor assessment
Fitch expects revenue growth will hover around national economic performance and exceed inflation. The county has the unlimited legal property taxing authority.
Expenditure Framework: 'aa' factor assessment
The natural pace of spending growth is likely to equal or slightly surpass revenue growth. Moderate carrying costs and ample control over labor's wages and benefits underlie the county's solid expenditure flexibility.
Long-Term Liability Burden: 'aaa' factor assessment
Modest capital needs and participation in a well-funded pension plan will enable the county to maintain its low long-term liability burden.
Operating Performance: 'aaa' factor assessment
The county's superior budget flexibility and ample general fund balance position it to manage comfortably through economic downturns without diminishing its overall financial flexibility.
RATING SENSITIVITIES
CONCENTRATION RISK: Federal budget cuts could negatively affect the regional economy, given the county's exposure to government and the defense sectors.
CREDIT PROFILE
Naval Support Facility Dahlgren, a multi-unit highly specialized military installation, is the county's largest employer, providing employment to an estimated 5,000 civilian and military personnel and 4,000 contractors. Consequently, the government sector accounts for approximately half of county employment, while professional and scientific services comprise nearly one-fifth. County officials estimate that the facility annually contributes over $1 billion to the regional economy. Surrounding markets augment the county's employment opportunities, with county out-commuters significantly outnumbering those who work in the area. The county's unemployment rate is below national levels but above state levels. Wealth indicators are generally favorable to those of both the state and the nation.
Revenue Framework
Property taxes and state revenues account for around three-quarters of general fund revenues, at 59% and 16% in fiscal 2015, respectively. Sales tax collections represent 6% of revenues.
The stable naval facility and the area's notable employment base will continue to underlie general fund revenue growth, which Fitch anticipates will trail the national GDP yet exceed inflation.
There is no legal limitation on the county's ability to increase its millage or the property tax levy.
Expenditure Framework
Education is the primary county expenditure, representing approximately one-third of general spending, followed by public safety, which is just shy of one-quarter of spending. Virginia public schools are largely funded by a mix of state and local aid contributions. The amount of local contributions is determined by the county board, and based on the state-determined performance standards for the school system.
Given the county's history of revenue growth that comfortably exceeds inflation, projections of above-average population growth, and limited capital and debt pressure, Fitch expects spending growth to be more or less aligned with revenue growth over time.
The county has solid flexibility to adjust major expenditure items. Fixed carrying costs associated with debt service, actuarially determined pension payments and other post-employment benefits (OPEB) actual payments comprise approximately 16% of governmental spending. Fitch expects future carrying costs to remain stable in the intermediate term, given limited future debt plans.
The county has broad discretion over the terms of employee wages and benefits given the absence of collective bargaining. A state mandate for a minimum funding level for education in theory limits the county's ability to reduce expenditures; however, the county currently funds education above the state's required local expenditure.
Long-Term Liability Burden
Minimal pressing capital needs will enable the county's long-term liability to remain low. Comprised of mostly direct debt, the county's low long-term liability burden amounts to an estimated 5% of the personal income base. The low $67 million five-year capital improvement plan consists primarily of projects that could be deferred if required. Landfill revenues have historically paid for capital projects and the county is not planning to issue debt in the near term.
The county participates in the statewide Virginia Retirement System (VRS), an agent multiple-employer defined benefit pension plan. The county's portions of the plan, for county general employees and the school board's non-professional employees, have an asset to liability ratio of around 96%, using a 7% return on investment assumption. The joint net pension liability is minimal at just under $2 million. The county pays the full contractually required payment, which equals an actuarially determined contribution.
The school board is a component unit of the county and reports a net pension liability for teachers at $31 million, or less than an additional 3% of personal income, based on a 7% return on net assets.
County employees are ineligible for other post-employment benefits (OPEB), though school retirees receive an implicit healthcare subsidy. The outstanding net liability is minimal as a percent of personal income.
Operating Performance
Healthy fund balances, a stable revenue base comprised of real property taxes, and a high level of inherent budget flexibility create a strong capacity for the county to spend a good portion of its reserves in a downturn and still maintain a fund balance above the safety margin consistent with its 'aaa' financial resilience assessment.
The county's favorable operating profile and frequent budget expenditure monitoring support strong budget management during an economic recovery. The county added to already strong reserves immediately following the Great Recession. Subsequent draw-downs on reserves have reflected primarily funding for capital projects.
Fiscal 2015 concluded with a surplus of nearly $2 million, equivalent to 4.8% of spending. The unrestricted fund balance rose to a high 51.8% of general fund spending. Fiscal 2016 results indicate positive revenue and expenditure variances and an addition to fund balance.
The $40 million fiscal 2017 budget represents an 8.5% increase over that of the previous year, incorporating a modest number of additional staff and across-the-board increases for county personnel. The budget included a $654,000 fund balance appropriation for one-time capital spending. Historically, year-end results show fund balance use below the budget.
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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