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Fitch Affirms Monterey County, CA's 2007 COPs at 'AA-'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings for Monterey County, CA (the county):

--$121.4 million certificates of participation (COPs), Series 2007 at 'AA-';

--Implied general obligation (GO) bond rating at 'AA'.

The Rating Outlook is Stable.

SECURITY

The COPs are secured by county lease payments for use of essential assets and are subject to abatement. The county has covenanted to budget and appropriate for lease payments annually.

KEY RATING DRIVERS

IMPROVING ECONOMY: Monterey County's economy shows steady gains over the past 24 months with a rebounding housing market and sustained employment growth. The county's agricultural and tourism base continues to perform strongly.

STABLE OPERATIONS: The county has strengthened its balance sheet coming out of the recession, with increased cash balances and sizable additions to reserves.

STRONG MANAGEMENT: Financial management remains strong, characterized by prudent reserve policies, regular monitoring and adjustment of budgets during the fiscal year, and active use of multi-year financial forecasts to guide long-term budget strategy.

HOSPITAL RESULTS REMAIN POSITIVE: Financial and operating results for the county's public hospital have remained positive, with no county general fund subsidies required to offset hospital deficits since fiscal 2008.

LOW DEBT: Overall debt levels are low and liabilities for retiree benefits are manageable.

RATING SENSITIVITIES

STRONG FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the county's stable finances and economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely in the near to medium-term.

CREDIT PROFILE

Monterey County is located on California's central coast, about one hundred miles south of San Francisco and 240 miles north of Los Angeles. The county encompasses approximately 3,300 square miles and includes 99 miles of coastline. The total population is approximately 429,000, three-quarters of whom reside within the county's 12 incorporated cities.

ECONOMIC RECOVERY CONTINUES

Monterey County's economy has continued to perform well in the wake of the recession, with steadily increasing employment levels. The county's jobless rate has traditionally exceeded state and national averages due to the dominance of the seasonal agricultural and tourism industries, but employment has seen year-over-year gains in 29 of the past 33 months. Unemployment remains elevated despite such improvements at 9.3% as of April 2014, compared to state and national rates of 7.3% and 5.9%, respectively.

The local real estate market has experienced steady gains following the downturn. Assessed values (AV) fell a relatively mild 7.5% during fiscals 2010 and 2011 but have recorded a cumulative 8.6% increase through fiscal 2015. Year-over-year home prices gains of 9.1% as of June 2014, as reported by Zillow.com suggest additional AV gains for fiscal 2016.

STABLE OPERATIONS

The county has strengthened its financial position in recent years with increased cash balances and reserves. Unrestricted fund balances reached a healthy 22% of general fund spending in fiscal 2013 and appear likely to increase further based on preliminary fiscal 2014 results. Multi-year projections point to rising labor costs as a source of budgetary pressure; however, the county has a strong track record of maintaining balanced operations, which Fitch expects to continue.

STRONG MANAGEMENT

The county's strong management is reflected in its stable operations during the recent downturn and the successful turnaround of its hospital enterprise following a history of deficit operations. No general fund subsidies have been required for the hospital since 2008, and operating metrics continue to show annual improvements. Management efforts are supported by extensive financial policies and multi-year forecasting.

LOW DEBT LEVELS

Overlapping debt is low at 1.9% of AV and a moderate $2,327 per capita. The county's unfunded pension and other post-employment benefit (OPEB) obligations are manageable and carrying costs for debt service and retiree benefits are low at 9.3% of governmental expenditures in 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 and Zillow.com.

Applicable Criteria and Related Research:

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=853094

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Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh
Director
+1-415-732-7573
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Scott Monroe
Director
+1-415-732-5618
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com