NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings of the town of Leesburg, Virginia at 'AAA':
--Issuer Default Rating (IDR);
--$137 million general obligation (GO) bonds.
The Rating Outlook is Stable.
The bonds are backed by the town's full faith and credit and unlimited ad valorem taxing ability.
KEY RATING DRIVERS
Leesburg's 'AAA' IDR reflects historically stable revenues with strong growth prospects and the legal ability to adjust the property tax rate. This revenue environment combined with solidly flexible expenditures and a very healthy level of fund balance provides exceptionally strong gap-closing capacity.
Economic Resource Base
The town of Leesburg is located in Loudoun County (rated 'AAA'/Stable) in northern Virginia, about 15 miles from Washington-Dulles Airport and 40 miles from the nation's capital. The estimated 2015 population of 51,209 has increased nearly 20% since the 2010 census.
Revenue Framework: 'aaa' factor assessment
General fund revenue has increased ahead of national GDP growth and Fitch expects continued solid growth. Revenue sources are diverse, with property taxes, the largest source of general fund revenue, representing just over one quarter of revenues. The revenue framework benefits from the lack of a legal property tax rate limit in Virginia and local control over other taxes and fees.
Expenditure Framework: 'aa' factor assessment
The town's fixed carrying costs are about 15% of governmental spending and, combined with the lack of other major mandated spending items and favorable workforce environment in Virginia, provide solid expenditure flexibility. Debt service costs are expected to increase significantly through fiscal 2023, though remain manageable.
Long-Term Liability Burden: 'aaa' factor assessment
The long-term liability associated with debt and pension is low. Minimal new money debt is planned and the pension plan's assets offset over 85% of the total pension liability.
Operating Performance: 'aaa' factor assessment
The town maintains very healthy reserves relative to the level of historical revenue volatility. Fitch believes these reserves, in combination with the rapidly rebuilt financial flexibility subsequent to the most recent recession, highlight the town's financial resilience.
MAINTENANCE OF STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the town's strong financial profile. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The town is primarily a residential community located 40 miles from Washington D.C., with access to the nearby job markets of Loudoun and Fairfax counties as well as Washington D.C. It is the county seat of Loudoun County.
With a well-educated workforce and close proximity to vibrant labor markets, the town has maintained low unemployment rates and very high wealth indicators. The town's unemployment rate stayed at 5% or below on an annual basis throughout the economic downturn. Its strong economic profile is rounded out by very high educational attainment, with nearly half of the population attaining a bachelor's degree compared to about 21% in the rest of Virginia.
General fund revenues are derived from diverse sources that include property taxes (28%) and other local taxes like those for communications (14%), sales (11%) and meals (10%).
General fund revenues increased more rapidly than U.S. GDP over the decade ending in fiscal 2015, benefiting from the rebound in assessed value (AV) that is back to slightly below the pre-recession high and also from increased revenues from sales, meals and communications taxes. These benefit from the strong economic performance of the region. Fitch expects solid revenue growth through the next business cycle due to the region's economic outlook and as the town's housing market continues to recover.
There is no legal limit to the property tax rate or levy in Virginia and the town retains the ability to adjust other local taxes fees, such as the meals and business license fees, as necessary, providing the town with significant revenue-raising flexibility.
The town of Leesburg's largest general fund expenditure is public safety, which consumes about a quarter of the budget. Fitch believes that the town has expenditure flexibility given the more discretionary nature of certain spending categories, lack of mandated spending requirements and workforce environment in the commonwealth that is favorable to management. The largest expenses after public safety are public works at 23%, including street and sidewalk maintenance, transportation and the operation of the town's airport, followed by parks and recreation at 17%.
The town's spending obligations are likely to increase at or slightly ahead of revenues in absence of policy action to control spending, given the expanding service needs of the growing resource base.
The town's fixed carrying costs for debt service, required pension payments and other post-employment benefits (OPEB) actual contributions are moderate at about 15% of fiscal 2015 governmental spending. Principal is retired at an above-average rate with nearly 70% paid down within 10 years. Minimal additional debt is planned in the capital program; however, debt service increases through fiscal 2023 due to the front-loaded structure of outstanding debt. Fitch expects the additional carrying costs will be closer to 20% of fiscal 2017 spending as debt service increases from $4.8 million in fiscal 2015 to $8.1 million in fiscal 2017. Management highlights the level of cash available in its debt service reserve fund (part of the assigned general fund balance) set aside for this purpose and projects draws on the debt service reserve fund of $1 million annually through fiscal 2023.
Long-Term Liability Burden
The long-term liability burden associated with debt and pensions is low at about 7% of personal income. Prudent capital planning, reasonable debt policies and above-average amortization are expected to keep the town's debt burden manageable. The town's current capital improvement plan for fiscal years 2017-2021 totals $106.5 million and includes only about $5 million in debt funding.
All full-time town employees participate in the Virginia Retirement System (VRS), an agent multiple-employer defined benefit pension plan administered by the commonwealth. The town's portion of the VRS net pension liability is about $11.3 million or less than 1% of personal income at the plan's 7% investment rate of return assumption. Total pension assets equal 86.4% of the total pension liability as of fiscal 2015.
The town's other-post employment benefits (OPEB) are similarly well-managed. The net liability is minimal as the town regularly contributes greater than the actuarially required contribution and keeps assets in an OPEB trust to offset the liability.
Fitch believes the town's very healthy level of reserves provides exceptionally strong gap-closing capacity considering the stable revenue base and superior level of budgetary flexibility. Fiscal 2015 operations produced a surplus of about $2 million that increased reserves to $21.6 million or about 44% of general fund expenditures. Unaudited fiscal 2016 results indicate a similar surplus. The town has increased the unrestricted fund balance reserve policy to 20% of general fund expenditures and is committed to maintaining that level of reserves, which it did throughout the last downturn despite some use of fund balance.
Management highlights no significant capital needs or deferred spending item that currently pressure town finances and has instead developed multi-year plans focused on meeting several years of increased debt service that began in the current fiscal year. The town has assigned portions of recent general fund surpluses for increased debt service that averages $7 million to $8 million through fiscal 2023, up from $5.7 million in fiscal 2016. At fiscal 2016 year-end the town held $8.5 million in assigned fund balance and plans to use $1 million per year to meet the increased debt service schedule. Given the town's strong history of conservative budgeting and controlling spending growth by managing vacancies, Fitch expects the town to outperform its projections given anticipated economic growth.
The fiscal 2017 budget assumes a continued increase in the tax base from annual reassessment and an equalized tax rate that is an increase of 1.6% to $.186 per $100 AV. Management expects sales tax will come in ahead of budget and help fund a 5.5% increase over the fiscal 2016 budget that primarily funds the increase in debt service. The town's overall tax rate, inclusive of the county rate, is above average within the region.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
Dodd-Frank Rating Information Disclosure Form
Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001