Fitch Affirms King George County, VA's Implied GOs at 'AA-', IDA Revs at
'A+' ; Outlook to Positive
NEW YORK -- February 28, 2013
Fitch Ratings has affirmed the following King George County, Virginia (the
--Implied general obligation (GOs) at 'AA-'.
In addition, Fitch affirms the following ratings:
--$2.2 million King George County Industrial Development Authority (IDA) lease
revenue bonds, series 2004 at 'A+'.
The Rating Outlook is revised to Positive from Stable.
The lease revenue bonds are secured by lease payments subject to annual
appropriation by the city. Essential government assets are subject to a lien.
KEY RATING DRIVERS
CONSISTENT FINANCIAL AND ECONOMIC PERFORMANCE DRIVES POSITIVE OUTLOOK: The
revision of the Outlook to Positive reflects the expectation that the county
can maintain its strong degree of financial flexibility and its current
economic profile despite risks arising from potential nation-wide defense cuts
MODERATELY CONCENTRATED ECONOMIC BASE: A specialized military base anchors the
county's stable but somewhat limited economy. The county benefits from
generally positive socio-economic metrics and relatively stable tax base.
AMPLE RESERVES AND LIQUIDITY: Strong financial management has produced healthy
reserves well-above the conservative policy level and high liquidity levels.
The ability to reduce expenditures, if required, increases the county's
MODERATE DEBT BURDEN: Limited intermediate-term debt issuance will allow the
county to maintain the current manageable debt position. Long-term obligations
do not pressure the credit.
APPROPRIATION RISK FOR LEASE REVENUE BONDS: The rating on the lease revenue
bonds reflects the county's underlying credit quality, the appropriation risk
included in the bond provisions, and the inclusion of essential government
assets under a lien.
MAINTENANCE OF FINANCIAL AND ECONOMIC PROFILE: A demonstrated ability to
retain strong reserves, favorable employment metrics, and economic stability
in the face of challenges posed by potential federal budget reductions could
result in an upgrade.
The county is located east of Fredericksburg, VA approximately 75 miles from
Washington D.C. and Richmond, VA. Its population of 24,161 has expanded quite
rapidly in the past decade, although the growth rate is expected to temper a
RESILIENT ECONOMY WITH MILITARY CONCENTRATION
The stable yet somewhat limited economy has performed well throughout the
economic downturn. The major employer, Dahlgren Division Naval Surface Warfare
Center employs around 350 military and 4,670 civilian personnel. Fitch
believes that the specialized nature of the center's commands, which focus on
training for naval weaponry, bode well for its continued essentiality.
Dahlgren has attracted a number of military concerns including Northrop
Grumman Corporation (Issuer Default Rating [IDR] 'BBB+', Stable Outlook) and
Lockheed Martin Corporation (IDR 'A-', Stable Outlook). As an indication of
the somewhat slender employment base, each firm is among the county's top
employers despite the small number of employees (less than 500). Approximately
60% of the county's labor force out-commutes to employment opportunities in
adjacent counties and the city of Fredericksburg (GO bonds rated 'AA+' Stable
Outlook by Fitch).
Were the upcoming sequestration to occur, Dahlgren may be significantly
affected by a proposed one day a week furlough of civilian employees and a
deferral of a couple of projects. Fitch will monitor how the economy fares
under these or other reductions, should sequestration be implemented. The
county's ability to absorb a sequestration with minimal impact would reflect a
credit profile associated with a higher rating.
SOLID SOCIO-ECONOMIC INDICATORS
The regional employment base has supported rapid population growth. Population
grew rapidly at an average annual rate of 3.4% from the 2000 to 2010 census,
well above the nation's 0.9%. Growth is expected to moderate somewhat this
decade. Although county employment fell a small 2.2% at the beginning of the
recession, it has subsequently remained flat or increased annually. The
December 2012 6.3% unemployment rate is below the nation's although above the
state's, which is consistent with the pattern of the past few years. The
majority of wealth indices indicate average incomes above regional and
Assessed value has also remained relatively stable over the past few years,
with only one year declining in the past decade, 5.6% in fiscal 2010. The
county has demonstrated its willingness to increase the regionally low tax
rate. The housing market has been reasonably steady since a drop when the
economic downturn began.
STRONG FINANCIAL FLEXIBILITY
Reserves and liquidity have consistently remained at robust levels. For the
past two years, the county has exceeded its conservative reserve policy equal
to 15% of the general government operating budget. Fitch notes positively that
the county has begun funding a newly established revenue stabilization fund,
with the goal of 3% of the general government operating budget. In addition,
the county anticipates that the utility fund will no longer rely on general
fund subsidies, removing a potential pressure point from the general fund.
The county concluded fiscal 2012 with an unrestricted fund balance (the sum of
committed, assigned, and unassigned per GASB 54) equal to $23.1 million, or a
high 60.2% of spending. The fiscal 2012 $810 thousand fund balance draw-down
equaled a small 2.1% of spending and was below the year's level of
pay-as-you-go capital funding. The net general fund support of the utility
fund was low at about $130 thousand.
INDICATIONS OF CONTINUED POSITIVE OPERATIONS
The $33.3 million fiscal 2013 budget reflects 5% growth from the prior year.
This is attributable in part to projected escalations in property tax
collections, due to the higher tax rate, as well as increases in sales tax
receipts. No funds are budgeted to support the utility enterprise.
The county reports that revenues to date are in-line with the budget. Fitch
believes that the limited nature of previously implemented spending reductions
affords the county flexibility should it be required to generate expenditure
savings. Current projections demonstrate a slight increase in fund balance at
the conclusion of the fiscal year. Fitch considers the forecasts viable.
POSSIBLE ONE TIME USES OF RESERVES MAY RESULT IN STILL SOUND LEVELS
The county is considering the use of reserves to fund certain one-time and
capital projects in the intermediate term. Management has stated its
commitment to maintain reserves above policy levels. Fitch believes that the
county's history of conservative budgeting and prudent fiscal stewardship will
allow it to maintain a healthy financial profile.
MODERATE DEBT BURDEN
Overall debt levels are moderate at $2,908 on a per capita basis and 2.3% of
market value. Amortization is below average at 42.5% of principal retired
within 10 years. The county is contemplating using reserves and perhaps
issuing debt to finance its modest $34.6 million fiscal 2013 to fiscal 2017
capital improvement plan. Debt services costs are high at 17.2% of
governmental spending, exclusive of capital funds. A portion of the carrying
costs service school debt, although not all school expenditures are included
in the governmental spending.
LIMITED OTHER LONG-TERM LIABILITIES
Pension and other post-employment benefits (OPEB) contributions do not stress
financial operations. County employees participate in the state-administered
Virginia Retirement System (VRS). The county's annual payment, including
contributions for school employees, equals a low 2.2% of governmental
spending, exclusive of capital funds. The county's portion of the VRS plan is
adequately funded at 76%, using an assumed 7% investment rate of return, which
is Fitch's conservative assumption. The county will phase in the newly
required 5% employee contribution rate over a five-year term. Fitch believes
the county can absorb the incremental pay increases to offset the
contributions without reducing its financial flexibility.
County employees are ineligible for OPEB. School employees can receive OPEB
benefits. The school funds roughly 35% of the low $108 thousand annual
LEASE REVENUE BONDS SUBJECT TO APPROPRIATION
The bonds are secured by lease rental payments, subject to annual
appropriation, made by the county to the lessor, the IDA. The IDA assigned and
transferred its rights to a trustee, which can take possession of and re-let
the leased property in the event of non-appropriation or default. A high
school is the collateral under the lease.
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, and the 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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