Fitch Rates Cobb County, Georgia's $98MM TANs 'F1+'; Affirms GOs at 'AAA'

NEW YORK--()--Fitch Ratings has assigned the following rating to Cobb County, GA:

--Approximately $98 million general obligation (GO) tax anticipation notes (TANs), series 2012 at 'F1+'.

The TANs are scheduled to sell competitively on March 22, 2011.

In addition, Fitch affirms the following ratings:

--$47 million in outstanding GO bonds at 'AAA';

--$8 million in outstanding revenue refunding bonds, series 2004 issued by the Cobb County Solid Waste Authority at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The TANs and outstanding GO bonds are general obligations of the county, for which its full faith and credit and unlimited taxing power are pledged. The revenue refunding bonds are also secured by the county's full faith and credit general obligation and its ad valorem tax pledge, without limitation as to rate or amount pursuant to an intergovernmental contract between the county and the authority that requires the county to make contractual payments equal to debt service.

KEY RATING DRIVERS

EFFECTIVE MANAGEMENT: Sound financial operations and capital planning efforts are guided by a strong management team.

FAVORABLE DEBT PROFILE: The County's total debt burden is exceptionally low, principal amortization is rapid and no additional borrowing plans currently exist.

AMPLE FLEXIBILITY: Sizeable reserves and notably low taxing rates provide significant operating flexibility, as demonstrated by a tax rate increase in fiscal 2011 in response to continued declines in tax revenues.

STABLE ECONOMY: Cobb County's economy is anchored by a diverse group of large employers as well as its proximity to Atlanta. Wealth indicators are high and employment levels have exhibited recent growth, although unemployment remains somewhat elevated.

WEAK PENSION FUNDING: The county's pension fund is significantly underfunded, although management has implemented numerous changes in recent years aimed at improving the funded ratio.

SOUND CASH FLOWS: The 'F1+' rating on the county's TANs reflects satisfactory projected coverage on the repayment date, significant levels of borrowable funds, as well as the county's long-term credit characteristics.

COUNTY PLEDGE: The rating on the Cobb County Solid Waste Authority's series 2004 bonds reflects strong legal provisions, including absolute and unconditional contractual payments by Cobb County equal to debt service that are not subject to appropriation.

CREDIT SUMMARY

As part of the Atlanta metropolitan statistical area (MSA), the county's economy has diversified significantly over the years, leading to above-average wealth levels, historically good employment indicators and continued population growth. A diverse group of major corporations and military-related operations provide the majority of private sector employment in the county. WellStar Health Services, Inc. and The Home Depot, Inc., are the largest county private employers with approximately 12,000 employees each, followed by Lockheed Martin Aeronautical with 8,100 workers. Public sector employment is anchored by Dobbins Air Reserve Base and Kennesaw State University.

Employment expanded modestly during the latter half of the 2011, prompting the county's unemployment rate to decline to 8.5% in December 2011 compared to 9.4% one year prior. While still somewhat high, the county's unemployment rate compares favorably to the broader MSA as well as the state (9.4%). Income levels rank comfortably above the MSA, the state and nation.

As a fully built-out county, new development has been limited, although the number and value of new building permits have shown good growth over the past two years. The county's taxable assessed value (TAV) fell by 5.5% in 2011, the third consecutive year in which TAV declined. The fiscal 2012 budget forecasts a nearly 3% decrease in the general fund net tax digest and an approximately 3.8% decrease in the fire fund net tax digest. Property tax collections continue to approximate 99% each year.

The county issues TANs annually for cash flow purposes as the majority of property taxes are received between October and December immediately following the Sept. 30 fiscal year end. The TANs represent about 38% of projected property tax receipts collected in both the general fund and fire fund. Legal provisions do not require a final set-aside for repayment until two business days prior to note maturity (Nov. 30, 2012), although the county typically collects property taxes on a first-in basis in October and transfers the funds into a debt service account one week prior to note maturity.

Projected receipts and accumulated balances in the county's general and fire funds combine to cover TAN principal and interest a strong 2.0 times (x). Fitch believes the projections to be reasonable given that actual performance has consistently met forecasted results. The $94.9 million projected ending cash balance after TAN repayment in November 2012 equals almost 19% of total projected cash flow receipts, providing an adequate cushion against potential fluctuations in actual receipts or disbursements. The level of cash flow borrowing has declined in each of the prior three fiscal years after peaking at $115 million in 2009.

The county's financial position, despite economic pressures and ongoing declines in the taxable digest, remains healthy, guided by strong financial management and ample flexibility. Fitch believes that management has been aggressive in recent years in cutting expenses and raising revenues in order to return the county's operating funds to a structurally balanced position.

Contraction in the county tax digest prompted a nearly $8 million decline in property tax revenues and an almost 3.5% decrease in total general fund revenues in fiscal 2010. In response, management prudently continued cost cutting measures enacted in the prior year, including a hiring freeze, the elimination of unfilled positions and merit and overtime pay, and further reductions in pay-go capital spending. Nevertheless, fiscal 2010 ended with an $8.2 million operating deficit (net of transfers), reducing the county's unreserved general fund balance (the sum of the unassigned, assigned and committed fund balance under GASB 54) to $29.1 million, still equal to a sound 10.3% of spending and transfers. Results were similar in the county's second operating fund, the fire district fund, as the unreserved, undesignated fund balance declined to $6 million, equal to 8.3% of spending and transfers.

The fiscal 2011 adopted budget decreased by almost 3% from the adopted fiscal 2010 budget, assumed an additional $10 million decline in property tax revenue, and continued management's tight expenditure controls. However, a deeper than originally forecast decline in the taxable digest required management to enact additional mid-year budget cuts and prompted the county's board to adopt a 15% property tax increase in July 2011 across its operating and debt service funds in order to maintain structural balance and augment reserves.

Consequently, fiscal 2011 ended with a sizeable $24.6 million general fund surplus and a $6.2 million increase in total fund balance in the fire fund, despite a 4.6% decline in the total taxable digest. Fitch views positively the board's directive to utilize the fiscal 2011 surplus to replenish its operating and capital contingency reserves and make an a $2.5 million pension contribution in excess of the annual actuarially require contribution (ARC). The fiscal 2012 adopted budget is balanced without the use of reserves and includes a nearly 2% reduction in spending and a further 3% assumed drop in the taxable digest.

The county's notably low debt levels are the result of sound capital planning that includes historically high levels of pay-as-you-go financing and rapid debt amortization. Overall debt, which includes overlapping units, is equal to just $392 per capita and 0.4% of market value. Like most local governments in Georgia, the county utilizes a voter-authorized 1% special purpose local option sales tax (SPLOST) to finance various capital projects. In March 2011, county voters authorized a four-year extension of the SPLOST by an extremely narrow margin. Collections began on Jan. 1, 2012 and will continue through the end of 2015. Management forecasts that the recently passed SPLOST will collect approximately $492 million over that time span.

Funding for the county's pension fund (adjusted by Fitch to assume a 7% investment rate of return) remains weak for the rating level at 48% as of the latest valuation (Jan. 1, 2011), though management has implemented numerous measures aimed at improving the funded ratio over the coming years. Pension costs in fiscal 2011 accounted for a modest 8% of general and fire funds' combined expenditures.

The county prudently established a trust in fiscal 2008 to begin pre-funding its other post-employment benefit (OPEB) liability, which is estimated at $241 million. In conjunction with the establishment of the trust, the county reduced benefits for some existing employees and all new employees in order to reduce the long-term liability.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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, HIS Global Insight, Zillow.com, National Association of Realtors. .

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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Contacts

Fitch Ratings
Primary Analyst
Christopher Hessenthaler, +1-212-908-0773
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0538
Senior Director
or
Committee Chairperson
Adrienne Booker, +1-312-368-5471
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Hessenthaler, +1-212-908-0773
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0538
Senior Director
or
Committee Chairperson
Adrienne Booker, +1-312-368-5471
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com