Fitch Rates Greenville County, SC's GOs 'AAA'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'AAA' to the following Greenville County, South Carolina (the county) general obligation (GO) bonds:
--$25,335,000 (Greenville Technical College Project) series 2014.
The bonds are scheduled for competitive sale on March 3. Proceeds will provide funding for the construction of the Center for Manufacturing Innovation for Greenville Technical College.
In addition, Fitch affirms the following ratings:
--Approximately $57.5 million of outstanding GO bonds at 'AAA'; --Approximately $6.9 million of outstanding refunding certificates of participation (COPs) University Center Public Facilities Corp. (SC) (university center project) at 'AA+'; --Approximately $42.5 million of outstanding COPs (hospitality tax) at 'AA-'.
The Rating Outlook is Stable.
The GO bonds are secured by the full faith and credit and unlimited taxing power of the county.
The university center COPs are payable from lease rental payments by the county, subject to annual appropriation. Rental payments are payable from any legally available source of the county. Bondholders are additionally secured by a surety-funded debt service reserve fund (DSRF) equal to 50% of maximum annual debt service (MADS), and a leasehold interest in facilities providing educational and laboratory space for Greenville Technical College and other regional institutions of higher learning.
The hospitality tax COPs are payable from lease rental payments by the county, subject to annual appropriation. Rental payments are made solely from the proceeds of a 2% hospitality tax and, if these are not sufficient, the county's share of the state accommodations tax. Bondholders are additionally secured by a cash-funded DSRF equal to 50% of MADS and a leasehold interest in certain tourism-related properties.
KEY RATING DRIVERS
STRONG FISCAL OVERSIGHT: Greenville County's 'AAA' GO rating is supported by its exceptional financial management, consistent surplus operating results, sizable reserve levels and ample balance sheet liquidity.
DIVERSE AND BROAD ECONOMIC BASE: The county serves as an economic anchor for its region. Diversifying from its former textile manufacturing base, the local economy contains a broad mix of business services, healthcare, government, tourism and educational activities.
MODEST DEBT LOAD: Direct and overlapping debt levels are moderate while direct debt is rapidly amortized. Capital needs are very manageable and additional debt plans are not expected to alter the county's overall debt structure.
APPROPRIATION RISK: The COPs ratings reflect the risk of annual appropriation. The one notch difference between the GO and COPs ratings for the university center project COPs reflect the leasehold interests in essential facilities for the county.
LOWER RATING ON HOSPITALITY TAX COPs: The three-notch difference between the GO and hospitality tax COPs incorporates the narrow and potentially volatile repayment source for the COPs. Heightened appropriation risk due to the non-essential nature of leased recreational facilities is somewhat offset by restrictions on use of the revenues dedicated to COP repayment.
WEAKENING OF RESERVE BALANCES: Poor financial performance leading to substantial drawdown of reserves could threaten the GO and COPs ratings.
REDUCED HOSPITALITY TAX COVERAGE: Large declines in hospitality tax revenues resulting in significant reductions in debt service coverage could lead to negative rating action for the hospitality tax COPs.
The county encompasses 792 square miles in the northwestern Piedmont section of South Carolina along the North Carolina border. The city of Greenville is the county seat and sixth largest city in the state. The county has experienced robust population growth over the past two decades, increasing by over 40% between 1990 and 2010 to over 450,000. More recent population growth remains brisk at an estimated 3.6% between 2010 and 2012.
ECONOMIC ANCHOR FOR THE REGION
The county benefits from its location along Interstate 85 between Charlotte, North Carolina and Atlanta, Georgia becoming the economic center for a nine county region. The region's economy has diversified from its former manufacturing base to one with a broad mix of services and products. Leading sectors of economic activity include professional and business services, trade, healthcare, education, government and tourism. The two top employers are the county school district and Greenville Hospital System (revenue bonds rated 'AA-' with Stable Outlook), one of the largest health systems in the state, with combined employment of about 22,000.
TEPID JOB GROWTH SINCE 2011
County job growth slowed considerably since 2011 with employment increases of only 0.9% and 0.7% in 2012 and 2013, respectively. The marginal growth rates result in part to a series of layoffs in 2011 and 2012 as well as growing automation in the manufacturing and distribution sectors. Despite the slow pace of jobs recovery, the county's unemployment rate continues to decline, dropping to 5.3% as of November 2013 from 6.6% the year before, attributable in part to modest shrinkage in the county's labor force.
Fitch believes that significant capital investment activity in recent years and rising building permit valuations are positive signs. In addition, the opening of an inland port by the South Carolina Ports Authority on 100 acres within the county is expected to facilitate cargo shipments to the Port of Charleston as well as catalyze additional development on the property.
County wealth indices exceed state benchmarks but fall short of the national averages. Per capita income for 2011 accounts for 111% of state norms but only 95% of the national average.
MANUFACTURING STILL AN IMPORTANT ECONOMIC DRIVER
Manufacturing remains an important component of the local economy, accounting for approximately 12% of Greenville-Anderson-Mauldin metropolitan statistical area (Greenville MSA) employment. Branching out from its traditional focus on textiles and non-durable goods, manufactured products include industrial robots, electronic components, automotive products, gas turbines and pharmaceuticals.
Major manufacturers include auto manufacturer BMW, located in nearby Spartanburg, Michelin North America, and General Electric, which operates the largest gas turbine manufacturing plant in the world. Following an 11% decline in employment between 2008 and 2010, manufacturing jobs in the Greenville MSA have inched up over the past two years but remain well-below pre-recession levels.
CONSISTENT TAXABLE VALUE GROWTH
Assessed values have proven resilient, increasing every year since at least fiscal 2003. Tax base growth slowed in fiscal 2012 to less than 1% but improved in fiscal 2013 to a 1.4% rise. Management projects taxable values to maintain a modest growth trend, which Fitch believes is reasonable given the 4.1% gain in housing values over last year, according to Zillow.com. The tax base is diverse as the top ten taxpayers represent a modest 4.5% of total assessments.
Tax collections are exceptionally strong averaging 97% and 101% on a current and total basis, respectively. While county millage rates increased in fiscal 2014 to 51.9 mills from 47.3 mills in each of the three prior fiscal years, the 4.6 mill rate hike stems solely from the county absorbing the operations of its formerly separate recreation district, including its tax levy.
EXCELLENT FINANCIAL MANAGEMENT
The county's finances are excellently managed, characterized by very strong reserves, prudent budgeting and wide levels of liquidity. The county reported a net surplus of $3.3 million for fiscal 2013 general fund operations; the ninth consecutive general fund surplus. The positive results bolstered general fund balance up to $55.5 million or 42% of expenditures and transfers out. Nearly all of fund balance is unrestricted. Unassigned reserves are in excess of the county's prudent unassigned fund balance target of 25% to 35% of revenues.
Property taxes are the largest revenue source providing approximately 60% of general fund revenues. Property tax revenues have generally increased in conjunction with the expansion of the tax base and account for the bulk of overall revenue growth over the past five years. However, in fiscal 2013 a sizable increase in state aid also supported overall revenue expansion of approximately 4%. Public safety and law enforcement services combined represent more than half of general fund spending, increasing moderately at a 2.2% average annual rate over the past four fiscal years. Management has exercised strict cost control, limiting operating spending to an average increase of 2.3% annually since fiscal 2009.
The county budgets conservatively with actual results generally outperforming budget. Management's policy is to build in a contingency equal to 2% of estimated revenues for emergencies. The fiscal 2014 general fund budget proposes a modest $264,000 net operating surplus. Revenues are budgeted to increase by $4 million or 3% over fiscal 2013 actual revenues attributable to higher property tax revenues, additional state aid and increased transfers from special revenue funds. Revenue growth is expected to offset a 3% wage increase, the addition of 24 full time positions (1.4%) and higher benefit costs.
HIGH LEVELS OF LIQUIDITY
The county has ample liquidity with fiscal 2013 unrestricted general fund cash equaling almost 11x liabilities. The sizable cash balance covers operations until the major portion of property taxes are received in January and February. County projections for general fund operations call for a marginal surplus in fiscal 2015 followed by gradually expanding surpluses through fiscal 2017.
MANAGEABLE DEBT LOAD
Total debt burden is moderate at 3.25% of market value. Direct debt levels are relatively low but substantial overlapping debt of the Greenville County School District raises overall debt levels. Direct debt is rapidly amortized with approximately 70% of principal retired within ten years and substantial issuing margin remains under the legal debt limit. The county's five year capital improvement program is manageable with $87 million of identified non-enterprise capital needs. Officials are considering the building of a new county headquarters with an estimated cost of $55 to $60 million funded through a combination of sale of the land in which the existing headquarters is situated, bonds and reserves.
RETIREMENT COSTS DO NOT PRESSURE FINANCES
The county provides pension benefits to its employees through the South Carolina Retirement System (SCRS) or the South Carolina Police Officer Retirement System (PORS), both of which are state administered cost-sharing multiple employer retirement systems. Plan participants pay 100% of their share of the annual actuarially required contribution (ARC). Funding for SCRS and PORS reported at 64.7% and 71.1% or 61.4% and 67.4%, respectively, estimated using Fitch's more conservative 7% rate of return, is less than what Fitch considers adequate so contribution requirements are likely to rise over time. The county's fiscal profile is capable of accommodating some growth in pension costs as fiscal 2013 county pension contributions account for an affordable 5.7% of general government spending.
Other post-employment benefits (OPEB) including retiree medical care are provided to retirees through one of three county-subsidized medical plans. The county's OPEB costs are funded on a pay-go basis. The OPEB's unfunded actuarial accrued liability (UAAL) of $10.4 million as of July 2012 is very modest, representing less than 0.1% of the county's current market value.
CRITICAL ASSETS UNDER UNIVERSITY CENTER LEASE
The university center project COPS were used to fund facilities for the University Center, a consortium of higher education institutions including Greenville Technical College, Clemson University and the University of South Carolina designed to increase access to educational opportunities to area residents. Property under the master lease subject to surrender if the county fails to appropriate lease payments for debt service includes classroom and laboratory facilities essential for University Center operations.
ADEQUATE HOSPITALITY COPS COVERAGE
The hospitality tax has been collected pursuant to county ordinance since April 1, 2007 at a uniform rate of 2% on the sales of prepared meals and beverages, including alcoholic beverages, beer, and wine, at any business with a fixed place of operation in the unincorporated county. Approximately 70% of the county's total population resides within the unincorporated area and 726 establishments there remit the hospitality tax to the county on a monthly, quarterly, or annual basis as determined by the average monthly tax collection. The hospitality tax ordinance terminates on the later of Dec. 12, 2026 or the payment of the last maturing obligation being paid from the hospitality tax.
Hospitality taxes have been steady through the recession, suffering their only drop-off in collections in fiscal 2010, a relatively minor 0.6% annual loss. Collections for the three following fiscal years have rebounded moderately with increases of 2.9%, 2.8% and 3.4%, respectively. Fiscal 2013 hospitality tax revenues provide debt service coverage of 1.88x. Also available to pay debt service are accommodations tax revenues which total only a small fraction of hospitality tax collections. Debt service is relatively level through 2028. Six month year-to-date collections of the hospitality tax in fiscal 2014 are down slightly over the same collection period in fiscal 2013.
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 and Related Research: --'Tax-Supported Rating
Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria