Fitch Rates Cobb County, Georgia's TANs 'F1+'; Affirms GOs at 'AAA'
NEW YORK -- March 11, 2013
Fitch Ratings has assigned a rating of 'F1+' to the following tax anticipation
notes (TANs) to be issued by Cobb County, Georgia (the county):
--$67 million general obligation (GO) TANs, series 2013.
The TANs are scheduled to sell competitively on March 26. Proceeds will pay
current expenses of the county until the collection of property taxes in
September through December.
In addition, Fitch affirms the 'AAA' rating on approximately $33.4 million of
outstanding GO bonds, and approximately $4.1 million of outstanding revenue
bonds issued by the Cobb County Solid Waste Management Authority (the
The Rating Outlook is Stable.
The TANs and GO bonds are general obligations of the county, for which its
full faith and credit and unlimited taxing power are pledged. The authority
revenue bonds are secured by payments made by the county pursuant to an
intergovernmental contract, which constitute a general obligation of the
county backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
SOUND CASH FLOWS: The 'F1+' rating on the county's TANs reflects satisfactory
projected coverage on the repayment date and significant levels of borrowable
funds, as well as the county's long-term credit characteristics.
STABLE OPERATING RESULTS, AMPLE FLEXIBILITY: Strong management practices are
evidenced in the general fund's generally stable financial performance over
time and sizeable reserves. Notably low taxing rates provide significant
operating flexibility going forward.
VERY LOW DEBT: Key debt metrics are very affordable, as the county funds most
capital needs from revenue of a voter approved special purpose local option
sales tax (SPLOST).
STABLE ECONOMY: Over the long term Fitch expects the county will continue to
benefit from a diverse corporate presence, stable population and employment
growth, above average wealth characteristics, and proximity to Atlanta.
WEAK PENSION FUNDING: The county pension fund is significantly underfunded,
although management has implemented numerous changes in recent years aimed at
improving the funded ratio.
The long-term 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 these shifts are highly
Cobb County is part of the Atlanta metropolitan statistical area (MSA) and
located about 20 miles northwest of downtown Atlanta. The county's population
continues to grow at a steady pace, reaching an estimated 697,553 in 2012.
FREQUENT TAN ISSUER; STRONG COVERAGE
The county issues TANs annually for cash flow purposes as the majority of
property taxes are received between October and December immediately following
the Sept. 30 fiscal year end. TAN borrowing continues to decline from a peak
of $115 million in 2009 and $98 million last year, indicative of improved
economic and financial performance and higher year-end cash balances.
Projected receipts and accumulated balances in the county's general and fire
funds combine to cover TAN principal and interest a strong 2.8 times (x).
After TAN repayment in November 2013 the projected ending cash balance of
$121.7 million, equal to 30% of total projected operating receipts, provides
an adequate cushion against unanticipated cash flow fluctuations. Fitch notes
the county generally forecasts revenues quite conservatively.
Property taxes, which account for approximately 63% of projected operating
receipts, have an excellent collection history with delinquencies
approximating only 1% of the levy. The county has assumed no annual change in
the value of the 2013 tax digest, which will not be known until June 2013.
Fitch believes this is a reasonable assumption, noting improved stability in
the value of the 2012 tax digest for the general fund and fire fund which
declined only 0.9% and 2.1% respectively. Fitch also notes that January
single-family home prices within Cobb County are up 3.7% on the year according
Legal provisions do not require a final set-aside for repayment until two
business days prior to note maturity (Nov. 27, 2013), although the county
typically collects property taxes on a first-in basis in October and transfers
the funds into a debt service account one week prior to note maturity.
POSITIVE OPERATING RESULTS IN FISCAL 2011-2012 STRENGTHEN RESERVES
General fund operating results were strongly positive for the second
consecutive year in fiscal 2012. An operating surplus (after transfers) of
$14.2 million (the equivalent of 4.5% of spending) increased the unrestricted
fund balance to $71.1 million or 22.7% of spending. The county's reserve
policy is equal to 9% of budgeted expenditures.
Actual results in fiscal 2012 were notably better than the amended budget,
which had forecast a $4.9 million reduction in fund balance, reflecting a
combination of conservative revenue assumptions, deferred hiring, and other
BUDGETARY BALANCE IN FISCAL 2013 AND 2014
The county adopts a biennial budget, which is balanced for fiscal 2013 and
2014 and does not appropriate existing reserves. Revenues conservatively grow
less than 1% from the adopted fiscal 2012 budget over this period.
Following the strong results of fiscal 2012 the county amended the adopted
fiscal 2013 budget to appropriate $19 million in reserves for tax rate relief
($4.7 million) and one-time expenses related to early debt repayment ($2.8
million) and technology investments ($3.2 million). The budget also funds $3
million for contingency. Fitch does not believe the use of these funds would
impair the county's financial flexibility or credit quality.
The tax relief initiative noted above rolls back about one-fifth of the 13.2%
tax rate increase adopted in fiscal 2011 to mitigate the financial impact of a
declining tax digest. The county's tax rate remains very competitive,
representing a reasonable source of revenue raising capacity for future fiscal
periods, if necessary.
FAVORABLE ECONOMIC PROFILE
Fitch's evaluation of the Cobb County economy focuses on its proximity to the
broad and diverse employment base of the Atlanta MSA, historically good local
employment indicators, income levels which are 20%-30% above the Georgia and
U.S. norms, a highly educated labor force, consistent population growth, and a
competitive tax burden relative to area localities.
There are four Fortune 500 companies headquartered in Cobb County including
The Home Depot (also the largest employer with 20,000 employees and second
largest taxpayer), Coca-Cola Enterprises, Genuine Parts (NAPA) and First Data.
The county is also home to several military-related operations, most notably
Lockheed Martin, which cut or announced the elimination of some 1,060 jobs
during 2012. Lockheed currently employees 6,900 at its Marietta facility,
equal to a fairly modest 2% of the county's employment base. The federal
government accounts for only 1.2% of county employment.
Fitch notes that despite the Lockheed layoffs the county has experienced 28
consecutive months of year-over-year job growth, during which period the
unemployment rate has improved to 7.6% from 9.8%. The rate of growth during
this period (about 1.8% annualized) is equal to approximately 140% of the
EXCEPTIONALLY LOW DEBT BURDEN
The overall debt burden is estimated at $491 per capita and 0.5% of market
value. The county's notably low debt levels are the result of its historically
high levels of pay-as-you-go financing and rapid payout of debt. There are no
plans for additional GO debt.
Like most local governments in Georgia, the county utilizes a voter-authorized
1% SPLOST to finance various capital projects. In March 2011, county voters
authorized a four-year extension of the SPLOST by an extremely narrow margin.
Collections began on Jan. 1, 2012 and will continue through the end of
calendar 2015. Management forecasts the 2011 SPLOST will generate $492 million
in revenue largely for transportation ($379 million) and recreation projects
PENSION FUNDING REMAINS WEAK
Funding for the county's pension fund (adjusted by Fitch to assume a 7%
investment rate of return) remains extremely weak for the rating level at 48%
as of the latest valuation (Jan. 1, 2012). Tempering this concern are the
numerous measures enacted by the county since 2008 aimed at improving the
funded ratio over the coming years and the relatively low burden that this
liability places on resources.
The county also budgets the full actuarial required contribution (ARC) for
pension which, combined with the carrying costs for debt and other
post-employment benefits (OPEB) consume a moderate 15.6% of governmental fund
spending (less the SPLOST capital fund).
Fitch notes the county fully funds the ARC for OPEB and established a trust
with a fair market value of $43.5 million in fiscal 2011. In conjunction with
the establishment of the trust, the county reduced benefits for some existing
employees and all new employees in order to reduce the long-term liability.
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 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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Michael Rinaldi, +1-212-908-0833
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Evette Caze, +1-212-908-0376
Amy Laskey, +1-212-908-0568
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