Fitch Rates Fairfax County, VA's GO Public Improvement Bonds 'AAA'; Outlook
NEW YORK -- December 20, 2012
Fitch Ratings assigns an 'AAA' rating to the following Fairfax County,
--$249.23 million public improvement bonds, series 2013A;
--$124 million refunding bonds, series 2013B.
In addition, Fitch affirms the following bonds issued by Fairfax County, VA:
--$2.02 billion of outstanding general obligation (GO) bonds at 'AAA';
Fitch also affirms the following bonds at 'AA+':
--Fairfax County Economic Development Authority lease revenue refunding bonds
series 2003 (Government Center Properties);
--Fairfax County Redevelopment & Housing Authority lease revenue bonds, series
2005 (Herndon Senior Center Issue);
Further, Fitch affirms the following bonds at 'AA':
--Fairfax County Economic Development Authority facility revenue bonds, series
2012A (Community Services Facilities Project);
--Fairfax County Economic Development Authority facilities revenue refunding
bonds, series 2012A (Laurel Hill Pub Facilities Issue);
--Fairfax County Economic Development Authority parking revenue refunding
bonds, series 2005 (Vienna II Metrorail Station Project);
--Fairfax County Economic Development Authority facilities revenue bonds,
series 2003 (Laurel Hill Pub Facilities Issue);
--Fairfax County Economic Development Authority facilities revenue bonds,
series 2005A (School Board Central Admin Building Project Phase I);
--Fairfax County Redevelopment and Housing Authority revenue bonds, series
2006 (Braddock Glen Adult Day Health Care Center & Southgate Neighborhood
Proceeds from the 2013A series will fund school and transportation
improvements, as well as public safety, library and park projects. Proceeds
from the 2013B series are authorized to refund all or a portion of the
outstanding public improvement bonds, series 2004A & B, 2005A, 2007A and 2008A
for debt service savings.
The bonds are scheduled for competitive sale on Jan. 9, 2013.
The Rating Outlook is Stable.
The series 2013A public improvement and refunding bonds will be general
obligations of Fairfax County, for which its full faith and credit and
unlimited taxing power are irrevocably pledged.
The outstanding revenue bonds issued by the EDA and RHA are secured by the
county's obligation to make lease payments equal to debt service or its
obligation to replenish any reserve fund deficiency, each subject to annual
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Financial operations are characterized by a
conservative approach to budget development, timely revenue and spending
adjustments, and steady compliance with a reserve policy equal to 5% of
ROBUST ECONOMY: The rating further reflects the county's strong and diverse
economic base, benefiting from its location near Washington D.C., with high
wealth levels and low unemployment. Assessed value appears to be improving
after two years of sizable declines.
FAVORABLE DEBT PROFILE: Fairfax County continues to adhere to good debt
management guidelines, which have allowed overall debt levels to remain low.
Future needs according to the capital improvement plan are affordable and
should not impact debt ratios. Debt amortization is rapid.
APPROPRIATION RISK: The ratings on the revenue bonds issued by the EDA and the
RHA are notched down from the county GO rating, reflecting risk to annual
appropriation by the county for payments equal to debt service or in amounts
sufficient to maintain the reserve fund. A rating of 'AA' is assigned where
bondholders are not secured by a leasehold interest in essential governmental
Fairfax County is located in the northeastern corner of the Commonwealth and
encompasses an area of 407 square miles. Its current estimated population
exceeds 1.1 million. The county is part of the Washington, D.C. metropolitan
area, which includes jurisdictions in Maryland, the District of Columbia and
STRONG FISCAL MANAGEMENT MARKED BY HEALTHY RESERVE LEVELS
Historical financial operations are characterized by maintenance of healthy
reserves, adherence to internal reserve policies, a conservative approach to
budget development, and timely revenue and spending adjustments.
Fiscal 2012 general fund revenues showed modest year-over-year growth (1.8%),
although it was the strongest growth since 2008. Property taxes improved $42.4
million or 2% on the year reflecting both a rebound in taxable assessed value
and a reduction in the property tax rate of $0.02 per $100 of assessed value
(AV). Sales taxes performed strongly increasing $8 million or 5.2%
Revenue gains were offset by 2.2% year-over-year growth in expenditures mainly
attributable to compensation and benefit increases (the first since fiscal
2009). As a result, the county experienced a modest operating deficit of $22.7
million, reducing the unrestricted fund balance to $352.54 million or a still
sound 10.3% of spending. The committed balance is inclusive of a managed
reserve equal to 2% of spending, and a revenue stabilization reserve equal to
3% of spending, which are in compliance with the county's longstanding fiscal
The fiscal 2013 budget of $3.52 billion represents a 4.3% increase over the
adopted fiscal 2012 budget and increases the property tax rate marginally to
$1.075 from $1.07 per $100 of AV. Education remains the county's largest
expenditure at 53% of general fund budgeted spending, underscoring that
education continues to be the county's highest priority.
The county has appropriated $61.6 million of fund balance in fiscal 2013 or
1.8% of spending. The budget fully funds the other post-employment benefit
(OPEB) ARC (at less than 1% of general fund spending). Beginning in fiscal
2012, the county has fully funded the OPEB ARC which lessens Fitch's concern
that the pension was not adequately funded. The budget also funds compensation
and benefit adjustments totaling $68.6 million.
Year-to-date operations reflect a positive variance of approximately $10
million-$15 million, which should reduce the use of fund balance. The
operating loss projected for the current fiscal year would mark the third
straight fund balance drawdown (although modest relative to spending). Fitch
expects the county will continue to take appropriate budgetary action to
maintain compliance with its reserve policies, leading to generally balanced
to positive operations.
The county is projecting a $169 million shortfall for the fiscal 2014 budget,
though final adoption does not occur until late April 2013. The county has
identified a number of measures that should adequately address the gap,
including but not limited to across the board agency reductions of 5%,
examining possible fee increases, and deferring employee compensation
REVENUE FLEXIBILITY IS STRONG
The general fund revenue base is largely supported by property taxes.
Management has been willing to raise the real property tax rate in recent
years to offset tax base declines. Revenue control is sound, as there are no
restrictions on tax rates or levies. Despite recent declines in AV, Fitch
considers the county's tax base generally stable. AV in the county increased
2.8% in fiscal 2012 and 3.3% in 2013, following two years of declines of
around 9%. Collection rates are exceptional, and there is no concentration
among top taxpayers.
Revenue growth is forecasted to increase 3.1% in 2013, 2% in fiscal 2014 and
2% in fiscal 2015. Fitch considers these targets to be achievable, based on
recent improvement in the county's tax base, a solid pipeline of new
construction activity, and upward trending sales tax reflecting improved
In addition, management continues to exhibit a prudent approach to budgeting,
adjusting spending levels to compensate for a weak revenue environment, and
tight spending controls, with actual expenditures finishing under budget from
2% to 4% from fiscal 2007-2012.
ROBUST AND DYNAMIC REGIONAL ECONOMY
Fairfax County's economy continues to perform well, benefiting from its
proximity to Washington D.C. and increased federal spending which insulated
the region from the worst of the recession.
The county's unemployment rate remains well below the state and nation, at 4%
in September of 2012, improving from a peak of 5.5% in early 2010. Solid gains
have also been reported within the professional and business services,
education and health, and leisure and hospitality sectors.
The strong local job market is complemented by one of the more highly educated
labor forces in the nation, contributing to median household income two times
the national average. The housing market has exhibited signs of price
stabilization, and exposure to non-traditional mortgage products is below
An expansive multi-modal transportation system serves the region; however,
there are significant infrastructure needs necessary to alleviate congestion
and promote commerce and industry which management has identified as a
long-term challenge but one that should be somewhat addressed with the
completion of the Dulles Metrorail expansion project. The expected completion
date for construction of Phase 1 is early 2014, which includes five new
stations in Fairfax.
SIGNIFICANT FEDERAL GOVERNMENT EXPOSURE
While federal civilian employment makes up just 3.8% of total jobs in the
county, the county is home to the headquarters of several large government
contractors including Booz, Allen, Hamilton, Northrop Grumman, SAIC, and
Lockheed Martin, each with 4,000 employees or more. Furthermore, within the
broader Washington-Arlington-Alexandria metropolitan statistical area (MSA)
the federal government and professional and business service sectors account
for 12% and 23% of total employment, respectively.
While historically this has been an important source of stability, potential
sequestration and other expected federal deficit reduction in the coming years
could weaken the county's economy.
Economically sensitive revenue streams maybe affected in the short term,
however, the county has conservatively budgeted revenue growth and prudently
established an $8 million reserve within the committed general fund balance to
offset any potential revenues losses.
LOW DEBT LEVELS REFLECTIVE OF PRUDENT POLICIES
Overall debt remains very low (1.5% of market value) largely reflecting the
affluence of the county's tax base and a conservative approach to debt
management and long-term capital planning. Debt service accounted for more
than $322 million in fiscal 2012, or an affordable 7.4% of total governmental
spending (debt service may not exceed 10% of spending by policy).
Outstanding debt is repaid at a rapid rate (63% within 10 years) helping to
mitigate the impact of future bond sales. Fitch does not anticipate a material
change in debt ratios in the near term.
Outstanding GO and other tax-supported debt pays interest at a fixed rate, and
the county has no derivative exposure. Pension costs consume a reasonable
share of the general fund budget (approximately 7.3%) and the
county-administered pension plans are funded at 70%? using a Fitch-adjusted
discount rate of 7%. OPEB costs represent just 1% of general fund spending and
the ARC is fully funded.
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, IHS Global Insight, National Association of Realtors.
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
U.S. Local Government Tax-Supported Rating Criteria
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