Fitch Rates Fairfax County, VA's GO Public Improvement Bonds 'AAA'; Outlook
NEW YORK -- December 20, 2013
Fitch Ratings assigns an 'AAA' rating to the following Fairfax County,
-- $314.1 million public improvement bonds, series 2014.
Proceeds from the 2014 series will fund school and transportation
improvements, as well as public safety, library and park projects.
Additionally, a portion of the 2014 series are authorized to refund all or a
portion of the outstanding series 2004A and B public improvement bonds for
debt service savings.
The bonds are scheduled for competitive sale on Jan. 14, 2014.
In addition, Fitch affirms the following bonds issued by Fairfax County, VA:
-- Approximately $2.02 billion of outstanding general obligation (GO) bonds at
Fitch also affirms the following bonds at 'AA+':
-- $41.2 million Fairfax County Economic Development Authority lease revenue
refunding bonds series 2003 (Government Center Properties);
-- $1.6 million Fairfax County Redevelopment & Housing Authority lease revenue
bonds, series 2005 (Herndon Senior Center Issue).
Further, Fitch affirms the following bonds at 'AA':
-- $64.8 million Fairfax County Economic Development Authority facility
revenue bonds, series 2012A (Community Services Facilities Project);
-- $47.8 million Fairfax County Economic Development Authority facilities
revenue refunding bonds, series 2012A (Laurel Hill Pub Facilities Issue);
-- $12.5 million Fairfax County Economic Development Authority parking revenue
refunding bonds, series 2005 (Vienna II Metrorail Station Project);
-- $51.48 million Fairfax County Economic Development Authority facilities
revenue bonds, series 2005A (School Board Central Admin Building Project Phase
The Rating Outlook is Stable.
The GO bonds are 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
appropriation. A two notch distinction is assigned where bondholder payments
are not secured by a leasehold interest in essential governmental facilities.
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 requirement of 5% of
ROBUST ECONOMY & EXCEPTIONAL DEMOGRAPHIC INDICATORS: 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 has begun to improve, reflecting a strong housing market.
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
bondholder payments are not secured by a leasehold interest in essential
CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in
fundamental credit characteristics including the county's strong financial
management practices. The 'AAA' rating and Stable Outlook reflect Fitch's
expectation that such shifts are unlikely.
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 2013 general fund revenues showed notable year-over-year growth (3.2%),
reflecting both taxbase growth and a 4% increase in the tax levy. Property
taxes are the county's largest source of revenues at over 70%. Sales taxes
moderately increased by $7.6 million or 3% year-over-year.
Revenue gains were offset by 3.3% year-over-year growth in expenditures mainly
attributable to increased education costs and a full year of compensation and
benefit increases. As a result, the county experienced a modest operating
deficit of $24.4 million, reducing the unrestricted fund balance to $328.5
million or a still healthy 9.3% of spending from 10.3% at the end of fiscal
2012. 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 policy.
ADOPTED FISCAL 2014 BUDGET: ADDITIONAL REVENUES & SPENDING CUTS
The adopted fiscal 2014 $3.6 billion general fund budget is a $48.6 million or
1.4% increase over the prior year. The increase is primarily attributable to
$41.27 million in additional funding for Fairfax County public schools. The
budget includes a tax levy increase of $20.7 million and spending reductions
of about $20 million including the eliminations of 41 positions. The county
has appropriated $17.5 million of fund balance, which is a $43.5 million
The county is projecting a $39.4 million (1.1% of spending) and $57.7 million
($1.6% of spending) shortfall for the fiscal 2015 and 2016 budgets
respectively, though final adoption does not occur until late April. The
county has identified a number of measures that should adequately address the
gap, including but not limited to deferring employee compensation increases
and reducing the increase of the transfer to the county schools. Fitch expects
management will make the necessary adjustments to maintain a positive
SIGNIFICANT FEDERAL GOVERNMENT EXPOSURE
While federal civilian employment makes up just 4% 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 23% each of total employment.
While historically this has been an important source of stability, the recent
government shut down did impact the county's economy. County management has
estimated a year-over-year 2.7% decline in sales tax due to the shut down for
fiscal 2014. Year-to-date revenues are down 2.1%. The budget includes an $8
million reserve and carries forward $15 million from the prior year's
budgetary surplus to offset potential declines in sales tax revenues.
ROBUST AND DYNAMIC REGIONAL ECONOMY
Fairfax County's economy continues to perform well, benefiting from an
established business base of federal contractors and high-tech companies
leverage Fairfax's highly educated labor pool, technology infrastructure, and
an extensive transportation network anchored by Washington Dulles
International Airport (Dulles).
The county's unemployment rate remains well below the state and nation, at
4.1% in August of 2013. Solid gains have been reported within the
professional, scientific and technical business services and retail trade.
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 stabilization,
with median sold price up 3.5% as of November 2013 compared to a year prior.
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.
LOW DEBT LEVELS REFLECTIVE OF PRUDENT POLICIES
Overall debt remains very low (1.3% 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 an
affordable 8.1% of total governmental spending (debt service may not exceed
10% of spending by policy).
Outstanding debt is repaid at an above average rate (62% 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.
Pension costs consume a reasonable share of the governmental spending
(approximately 7.3%) and the county-administered pension plans are funded at
75% using a Fitch-adjusted discount rate of 7%. OPEB costs represent less than
1% of governmental spending and the ARC is essentially fully funded.
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, Real Estate
Business Intelligence, Virginia Employment Commission.
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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Fitch Ratings, Inc.
Evette Caze, +1-212-908-0376
One State Street Plaza
New York, NY 10004
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