Fitch Rates Isle of Wight County, VA's GO Bonds 'AA'; Outlook Stable
NEW YORK -- June 11, 2013
Fitch Ratings assigns an 'AA' rating to the following general obligation (GO)
bonds of Isle of Wight County, Virginia (the county):
--$32 million general obligation refunding bonds, series 2013.
The proceeds of the bonds will be used to refund a portion of certain
outstanding general obligation bonds and notes of the county. The bonds will
sell via negotiated sale the week of June 17.
In addition, Fitch affirms the following ratings:
--$144 million in outstanding GO bonds at 'AA'.
The Rating Outlook is Stable.
The bonds are general obligations of the county, secured by its full faith and
credit and unlimited taxing power.
KEY RATING DRIVERS
AMPLE FINANCIAL FLEXIBILITY: Solid reserve levels as well as competitive tax
rates enhance the county's financial position.
MODERATE DEBT LEVELS: Debt levels should remain moderate given the county's
manageable capital needs.
DIVERSIFYING ECONOMY: The county's employment base remains heavily
concentrated in manufacturing, although this risk is somewhat offset by the
diversity exhibited in the broader regional economy and continued local
investment in non-manufacturing enterprises attributed in part to growth of
the regional port.
CONTINUED STRONG FINANCIAL POSITION: The 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
such shifts are unlikely.
Isle of Wight County is located in the Hampton Roads region of southeastern
Virginia. The county's population is small at an estimated 35,399 in 2012 but
growth has been strong increasing 19% over the past decade. The population is
expected to increase an additional 10% by 2020.
MANUFACTURING BASED ECONOMY IS BEGINNING TO DIVERSIFY
The county's economy remains concentrated in manufacturing (31% of employment)
but is diversifying as a result of the increased demand for warehousing and
distribution that is driven by the growth of the nearby Port of Virginia.
Fitch anticipates that the presence of the port, with its commercial and
military activities, will help continue to broaden the local economy.
Per capita and median household income metrics are above the national standard
and track closely to those of the wealthy state despite the high number of
local manufacturing jobs.
The county's employment base has done well to recover from the loss of 1,100
jobs due to the closure of International Paper in 2010. At 5% as of March 2013
the county's unemployment rate tracks well below the national average and has
significantly improved from a high of 7.1% in 2010.
Green Mountain Coffee Roasters, Inc. opened a $180 million distribution
facility in the county and will add 800 employees over five years. Also, Tak
Investments, Inc. opened a $60 million recycled tissue plant which is expected
to employ 85. Lastly, International Paper opened a new fluff fiber operation
which employs about 213 people.
RESERVE LEVELS REMAIN AMPLE
Financial operations are consistent and strong and reserve levels are sound.
Fiscal 2012 marked the third consecutive year of general fund operating
surplus during which period total general fund reserves improved nearly $5
million. At the close of fiscal 2012 general fund unrestricted fund balance of
$21.3 million equaled an ample 35.8% of spending. The county's fund balance
policy requires an undesignated GF balance of no less than 10% of subsequent
budgeted operating expenditures in any given year.
The general fund is largely supported by property taxes (63% of revenues in
fiscal 2012). In response to the county's softened housing market the fiscal
2012 budget was adopted with a 13 cent or 25% tax rate increase, the first tax
increase in over a decade The tax rate increase more than offsets a 3.8%
decline in taxable assessed value (TAV) in fiscal 2011 and 8.9% drop in fiscal
2012. The budget also prudently assumed a 97.8% collection rate although
collections have historically exceeded 99%. The county's tax rate or tax levy
is not subject to any limitation or cap. The county's tax rate is amongst the
lowest in the region, and combined with ample reserves provides for a strong
level of financial flexibility.
MODEST DEFICIT ANTICIPATED FOR FISCAL 2013
The fiscal 2013 budget is balanced with no property tax rate increase or fund
balance appropriation. Estimated fiscal year-end results reflect a $2.8
million use of fund balance for one-time capital needs, reducing the
unrestricted balance to $18.5 million or a still ample 31.7% of estimated
year-end general fund spending.
BALANCED FISCAL 2014 BUDGET
The adopted fiscal 2014 budget includes an eight cent real estate tax increase
($3.2 million in additional revenue) and no fund balance appropriation. The
county prudently implemented a tax rate increase to fund education and public
safety increases and five cents is dedicated to the equalization of revenues
following the 8.9% decline in TAV in fiscal 2012. Fiscal 2013 projected TAV
shows a 6.2% increase.
MODERATE DEBT PROFILE
Fitch expects overall debt ratios (2.9% of market value or $4,061 per capita)
will remain moderate given the county's affordable additional borrowing plans.
Debt ratios include GO water and sewer bonds as the utility systems is
currently not self-supporting. Debt service expenditures account for a low
6.2% of total governmental and education spending (excluding capital) and
amortization is average (57.2% in 10 years).
The county's fiscal years 2014 - 2018 capital improvement plan (CIP) totals
$138 million. The plan will be approximately 92% debt financed, doubling the
county's debt ratios to still moderate levels as annual debt plans are greater
than the annual principal amount amortized. Utility needs and school
construction projects represent nearly half of the projects included in the
The county participates in the state-wide Virginia Retirement System in a
separate cost-sharing pool. The plan is well funded at 79% for county
employees and assumes a discount rate of 7%. The county regularly contributes
its annual required contribution (ARC). For fiscal 2012 the $1.47 million ARC
equaled a modest 2.4% of total governmental (less capital) spending. The ARC
to amortize the county's other post-employment benefits ($198,291) is also
very manageable at a low 0.3% of total governmental (less capital) spending,
although the county currently funds this cost on a pay-as-you-go basis.
Carrying costs for debt service, pension and OPEB totaled a manageable 9% of
governmental (less capital) fund spending (less capital).
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, S&P/Case-Shiller Home Price
Index, IHS Global Insight, National Association of Realtors, RealEstate
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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