Fitch Rates Waukesha County, WI's GO Promissory Notes, Series 2015A 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AAA' rating to the following Waukesha County, WI (the county) notes:

--$10 million general obligation (GO) promissory notes, series 2015A.

The notes are scheduled for competitive sale on April 28. Proceeds will be used to fund various capital improvements in the county.

In addition, Fitch affirms the following ratings:

--Approximately $70 million in outstanding GO promissory notes, at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The notes are general obligations of the county payable from an unlimited ad valorem tax levied on all taxable property within the county.

KEY RATING DRIVERS

STABLE AND WEALTHY ECONOMIC BASE: The economy is stable and well diversified, characterized by historically low levels of unemployment and a growing, affluent, and well-educated population.

STRONG RESERVE LEVELS: Prudent fiscal policies and budgetary conservatism have resulted in solid reserve levels and ample financial flexibility despite planned drawdowns.

PROPERTY TAX BASE STABILIZING: The tax base is strong and well-diversified. After experiencing several years of moderate declines, the tax base has stabilized as housing values have regained lost value.

MANAGEABLE LONG-TERM LIABILITIES: The county adheres to strong debt management policies, which have kept overall debt levels modest. These levels should be sustainable given manageable capital needs, rapid debt amortization, and a 20% pay-as-you-go policy for capital projects. The county continues to fully fund pension obligations and has immaterial other post-retirement benefit obligations.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to the continuation of strong financial management and control policies which have produced strong reserve levels and considerable margins of flexibility.

CREDIT PROFILE

Waukesha County is located in southeastern Wisconsin, directly west of Milwaukee County and 100 miles northwest of Chicago. The county is part of the Milwaukee MSA and is the third most populous county in the state. According to the U.S. Census, the 2010 population totaled 389,891, an 8.1% increase since 2000. Since 2010 population has remained fairly steady, increasing by 1%. Residents have the highest median household income and the second highest per capita income in the state.

DIVERSE AND WEALTHY ECONOMIC BASE

The local economy is diverse and includes healthcare, education, retail and manufacturing. Although the manufacturing sector represents approximately 19% of total county employment, it is very broad and includes one of the country's largest printing companies (Quad Graphics) and General Electric Medical Systems, both among the largest employers in the county.

The diverse economy has resulted in unemployment rates that have historically been well below state and U.S. averages. The January 2015 unemployment rate was 4.4%, down from 5.6% in January 2014 due to strong employment growth (3.7%) outpacing labor force growth (2.3%), and well below the state and national averages of 5.4% and 6.1%, respectively.

PROPERTY TAX BASE STABILIZING

The county's tax base is 75% residential. Reflecting the weak housing market and a decline in new construction, county equalized taxable values declined by a cumulative 10.8% from 2008 to 2013. Declines reversed in 2014, with a 4.1% increase due to relatively positive trends in residential building permits and housing values. To offset the taxable value declines, the county had raised the property levy rate from $1.79 per $1,000 of equalized valuation in 2008 to $2.15 in 2013 The tax levy in 2014 was reduced to $2.08 to offset higher assessed valuation. Despite the tax increases, the county's property tax rate continues to be the lowest among counties in the state that do not impose a sales tax, giving the county flexibility for future increases.

The tax base is well diversified with the top 10 taxpayers comprising a very small 2.7% of taxable equalized value. Property tax collections, which comprise approximately 52% of general fund revenues, continue to be strong, with total collections averaging over 99% for the last five years.

HEALTHY RESERVE LEVELS DESPITE DRAWDOWNS

Management's prudent fiscal practices have produced solid reserve levels with ending unrestricted general fund balances exceeding 30% of spending for at least the last three years. Additionally, Fitch believes the county has considerable revenue-raising flexibility given low property tax rates and untapped sales tax capacity. Per state statute, the county has available a 0.5% local option sales tax (no voter approval needed), with an estimated value in excess of $35 million. The county is one of only a few counties in the state that does not have a sales tax and has no current plans to levy one.

For fiscal 2013 (year-end Dec. 31), the county recorded a general fund deficit of $6.5 million (4% of spending) after transfers due to planned drawdowns primarily for capital projects. The county ended 2013 with a $51.9 million unrestricted general fund balance, equivalent to a strong 32.4% of general fund spending compared to 35.8% in 2012.

Unaudited preliminary results for fiscal 2014 report a deficit after transfers in the general fund of $11.1 million (6% of general fund expenditures) due to planned transfers out for capital projects. Fitch projects the unrestricted general fund balance will decline to approximately a still healthy 25% of general fund spending.

The county maintains a formal fund balance policy whereby unassigned fund balance must equal a minimum 11% of general and special revenue fund spending, with a current target of 15%-16%, or approximately eight weeks of working capital for operations. By this measure, the 2012, 2013 and estimated unaudited 2014 results of 19.6%, 19.1% and 19%, respectively, are above the county's policy and target. Continuing with its plan to draw down the general fund balance to target levels, the 2015 budget projects 16.6% unassigned fund balance. Fitch expects the county to continue to maintain healthy reserve levels given management's history of strong fiscal management and conservative budget practices.

MANAGEABLE LONG-TERM LIABILITIES

The county's pay-as-you-go capital funding policy coupled with exceptionally rapid amortization - all debt is amortized in 10 years - results in a moderate to low debt burden of $2,177 per capita or 1.8% of market value. The county's strategy is to structure its debt issues to maintain annual debt service payments without major fluctuations. This continues to be accomplished through the issuance of nine to 10 year term promissory notes amortized with larger payments in the final years to integrate new debt with existing debt. Future borrowings are planned to continue with repayment in 10 or fewer years.

The county's 2015-2019 five-year capital plan totals approximately $92 million and includes about $62.9 million (including this issue) in additional new debt through 2019. The county is projecting issuance of $11 million in 2016 and 2017 and increasing to $14.9 million and $16 million in 2018 and 2019, respectively. The increase in the later years corresponds with the first phase of a project to upgrade and improve the county courthouse facility.

County employees participate in the Wisconsin Retirement System, a cost sharing multiple-employer defined benefit plan. As of Dec. 31, 2013, the plan was fully-funded and still well-funded at approximately 97.8% when adjusted by Fitch to reflect a 7% discount rate. The county continues to fully fund its actuarially-determined annual required contribution and does not provide or subsidize material post-employment health benefits to any of its employees. County retirees are eligible to participate in a health plan for which they pay the full premium amount. Carrying costs for pension and debt service are manageable at 13% of 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, CreditLogic Case-Shiller Index, IHS Global Insight, Zillow.com and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. Local Government Tax-Supported Rating Criteria', dated 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=982832

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Contacts

Fitch Ratings
Primary Analyst
Karen Wagner
Director
+1 212-908-0230
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Scher
Associate Director
+1 212-908-0686
or
Committee Chairperson
Amy Laskey
Managing Director
+1 212-908-0568
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Karen Wagner
Director
+1 212-908-0230
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brendan Scher
Associate Director
+1 212-908-0686
or
Committee Chairperson
Amy Laskey
Managing Director
+1 212-908-0568
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com