Fitch Upgrades Wicomico County, MD's GOs to 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'AA' rating to the following limited tax general obligation (LTGO) bonds of Wicomico County, Maryland (the county):

--$16.5 million general obligation (GO) public improvement bonds series 2014A and 2014B (Taxable).

Fitch also assigns an 'AA' implied GOULT rating.

The bonds are expected to be sold via a competitive sale on Dec. 16. Proceeds will be used to finance various school and county capital projects.

In addition, Fitch upgrades the following ratings:

--$101 million of outstanding GO bonds to 'AA' from 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the full faith, credit, and taxing power, subject to constraints set forth in the county charter. Revenues derived from taxes on properties shall not increase, compared with the previous year, by more than 2%, or by the consumer price index for all urban consumers, whichever is lesser. New construction and funding the local board of education's budget are not subject to the charter limitations.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The rating upgrade reflects the county's strong financial profile including revenue and spending flexibility as well as robust reserves.

STRONG FISCAL MANAGEMENT: Timely revenue enhancements and conservative budgeting have resulted in positive operating results, ample reserve levels and strong liquidity.

BELOW AVERAGE ECONOMIC PROFILE: The county is the economic and commercial center for the lower eastern shore region of Maryland, however, key economic metrics remain stressed and below state and national norms.

FAVORABLE DEBT POSITION: Overall debt levels are low, amortization of principal is rapid, and county officials prudently analyze capital needs alongside debt affordability.

WELL MANAGED OTHER LONG-TERM LIABILITIES: The county's pension system is well funded. Raising teachers' pension costs funded through the state plan are affordable.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The county is located on the Delmarva Peninsula in southeastern Maryland and had an estimated 2013 population of 100,896, a 19.2% increase since 2000.

CONSERVATIVE BUDGETING & REVENUE ENHANCEMENTS LEAD TO OPERATING SURPLUSES

The county has prudently increased the property tax rate to offset revenue pressures stemming from ongoing declines in taxable assessed value (TAV) and continued to budget conservatively. As a result, in fiscal 2013 the county realized a notable $4.3 million (3.8% of spending) operating surplus after transfers, increasing the unrestricted balance to $41.7 million or an ample 36.8% of general fund spending. The rainy day fund, which is included in the committed fund balance, remains funded at the policy level of 5% of the general fund budget.

Officials expect to increase the county's financial cushion in fiscal 2014 with a $2.1 million surplus (1.8% of estimated fiscal 2014 spending), which would mark the fourth consecutive year of positive year-end results. Favorable operations are mostly due to conservative expenditure budgeting and revenue enhancements made during the budgeting process.

The fiscal 2015 budget is less than a 1% increase over the fiscal 2014 budget. The budget increases the property tax rate to the maximum allowed under the charter for the third consecutive year and appropriates $5.7 million of fund balance for capital. According to the county's multi-year financial forecast total fund balance is projected to decline to a still ample 21% of projected spending.

DIVERSE REVENUE STREAM

The county derives the majority (49% in fiscal 2014) of its revenues from property taxes. A charter imposed revenue limit, approved by county voters and effective in fiscal 2002, constrains the county's property tax revenue growth to the lesser of the CPI or 2%. New construction and funding the local board of education's budget are not subject to the charter limitations, but debt service is. The county has increased the property tax rate in each year since fiscal 2012 to the maximum rate allowable under the charter to offset assessed value and maintain fiscal balance.

Income tax revenue accounts for 35% of revenues in fiscal year 2014. Income tax revenues continue to show positive trends which his somewhat reflective of a mid-year increase to the income tax rate to the maximum rate of 3.2% on Jan. 1, 2013.

The county reports that it retains options to raise revenue, which include increasing the recordation tax rate, imposing a transfer tax, increasing fees and/or increasing the real property tax rate for education funding, which is not subject to the revenue cap. Education accounts for approximately 36% of general fund spending). Despite recent increases to the property tax rate, it remains regionally competitive.

ECONOMIC INDICATORS REMAIN WEAK

Agriculture, higher education and healthcare provide a solid foundation for the economy. Socioeconomic indicators are weak. Both the employment base and labor force continue to contract, resulting in a lower but still above average unemployment rate as of September 2014 of 6.4%. Median household income is in line with the national average but well below state averages which are driven by high-wealth counties around the Washington D.C. area.

Total taxable value (TAV) has declined 19% between fiscal 2012 and 2015. Based on state data, the county is projecting a 1.5% increase in TAV in fiscal 2016.

MODEST DEBT

Overall debt levels are low at roughly $1,157 per capita and 1.9% of market value, and amortization is rapid at approximately 67.5% in 10 years. Debt servicing costs are 9.5% of total governmental spending.

The county's fiscal years 2015-2019 capital improvement plan totals $212 million, including the current issuance. Additional debt plans are modest at $49.5 million and pay-go funding totals $10.8 million. State and federal moneys fund about 61% of the plan. The majority of the plan (64%) funds school projects and public safety (22%).

PENSION & OPEB LIABILITIES REMAIN WELL FUNDED

The county provides a single employer retirement system which is currently fully funded (even as adjusted by Fitch to a 7% investment rate of return from 7.75%). Fiscal 2013 costs were a low 1.4% of total government spending. The county over funded the pension ARC in fiscal 2014 due to strong asset value growth. The county plans to continue to maintain a fully funded pension system. Beginning in fiscal 2013, teachers' normal pension costs were shifted to local governments over a four-year phase-in process. The county was able to absorb the additional $2.7 million cost in fiscal 2014.

The 2013 budget includes a $3.65 million contribution to other post-employment benefits (OPEB), which represents 127% of the ARC and 2.6% of total governmental spending. The county's OPEB liability is currently 40% funded. The county plans to reach 89% funded by 2029. Total fiscal 2013 carrying costs were a low 13% of total governmental spending.

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, Maryland Department of Labor, Licensing and Regulation, and Maryland Department of Business and Economic Development.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

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=934955

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Contacts

Fitch Ratings
Primary Analyst
Evette Caze, +1-212-908-0376
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Evette Caze, +1-212-908-0376
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com