Fitch Rates Cobb County, Georgia's TANs 'F1+'; Affirms GOs at 'AAA'
NEW YORK -- March 13, 2014
Fitch Ratings has assigned a rating of 'F1+' to the following tax anticipation
notes (TANs) to be issued by Cobb County, Georgia (the county):
--$52 million general obligation (GO) TANs, series 2014.
The TANs are scheduled to sell competitively on March 25. Proceeds will pay
current expenses of the county until the collection of property taxes later
this year. The notes will become due on Nov. 28, 2014.
In addition, Fitch affirms the 'AAA' rating on approximately $33.4 million of
outstanding GO bonds, and approximately $2 million of outstanding revenue
bonds issued by the Cobb County Solid Waste Management Authority (the solid
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 solid waste
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 FINANCIAL POSITION: Financial management practices are sound, evidenced
in generally stable financial performance over an extended period and healthy
VERY LOW DEBT: Key debt metrics are very affordable reflecting significant
pay-as-you-go financing from proceeds of a voter approved special purpose
local option sales tax (SPLOST).
STABLE ECONOMY: Fitch views participation in the sizable, diverse, and
expanding Atlanta metropolitan statistical area (MSA) favorably. The county
exhibits healthy economic diversification, low poverty, and above-average
LOW PENSION FUNDING: The funded status of the county pension plan is weak.
However, the unfunded liability remains manageable relative to the tax base,
pension costs along with debt and other post-employment benefits (OPEB) are
affordable, and 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 and is currently estimated at 709,000.
FREQUENT TAN ISSUER; STRONG COVERAGE
The county fiscal year starts on Oct. 1 but property taxes are not levied
until August and do not become delinquent until 60 days later. As such the
county issues TANs annually for cash flow purposes during the earlier part of
the calendar year. The level of TAN borrowing continues to decline from a peak
of $115 million in 2009, indicative of improved economic and financial
performance and higher year-end cash balances. TAN principal represents a very
manageable 13% of projected operating receipts and coverage remains
satisfactory. Projected receipts and accumulated balances in the county's
general and fire funds combine to cover TAN principal and interest by 3.05
times (x). After TAN repayment in November the projected ending cash balance
of $107.6 million equals 27% of total projected operating receipts, providing
an adequate cushion against unanticipated cash flow fluctuations. Fitch notes
the county generally forecasts revenues quite conservatively.
Property taxes account for approximately 66% of projected operating receipts.
Collection rates are very strong with delinquencies approximating only 1% of
the levy. Certification of the annual tax digest does not occur until June
each year or 9 months into the fiscal year, which represents a forecasting
challenge. However, the county assumed no change in value from the 2013 tax
digest, which experienced a rather modest 0.4% annual decline. Some growth in
the tax digest appears likely based on the level of new construction activity
and recent home price data from Case-Shiller and Zillow.
Legal provisions do not require a final set-aside for repayment until two
business days prior to note maturity, 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.
FISCAL 2014 EXPECTED TO EXTEND POSITIVE OPERATIONS TREND
Unaudited general fund results for fiscal 2013 include a $7.6 million
operating surplus after transfers (equal to 2.3% of operating expenditures and
transfers out). The surplus, the third in as many years, increases the
unrestricted fund balance position to $79.4 million or a healthy 24% of
spending. The county adopted a balanced budget for fiscal 2014 representing an
increase of less than 1% from the prior year. The budget does not appropriate
fund balance or rely on one-time sources of revenue. Year-to-date revenues and
expenditures are reportedly tracking slightly favorable to forecast.
COMMITMENT TO LOW TAXES BALANCED AGAINST FINANCIAL STABILITY
For the second consecutive year the county will reduce the general fund tax
rate by 0.2 mills. The millage cuts represent an effort to 'roll-back' the 1.5
mills or 15.7% tax rate increase that was enacted for fiscal 2011. The county
increased the tax rate in response to a cumulative $20.9 million or 34%
reduction in fund balance incurred over the preceding three fiscal years. The
fiscal 2010 unrestricted fund balance had been reduced to $34.4 million or
10.3% of spending, the lowest mark (as a percentage of spending) dating back
15 years. The tax rate increase helped the county rebuild reserves to a level
more consistent with its exceptional 'AAA' rating.
At its current level the county's tax rate is very competitive with other
large counties within the Atlanta MSA. The county's ability to increase the
property tax rate or levy is not legally constrained, representing an
important tool to offset future budgetary pressures. Similarly, Fitch views
the absence of spending pressure related to collective bargaining and
relatively low fixed costs associated with debt, pension, and OPEB as a
The county annually updates a 10-year financial forecast that depicts
structural balance and does not rely on revenue enhancements or unreasonable
assumptions with respect to the tax digest. Although management has no
immediate plans to spend down fund balance, it may consider use for one-time
purposes several years out.
FAVORABLE ECONOMIC PROFILE
Cobb County is situated within the core of the Atlanta MSA, the ninth largest
employment base in the U.S. with approximately 2.5 million non-farm jobs.
Historically the county's unemployment rate has tracked closely to the U.S.
while outperforming the Georgia average. The county's educational attainment
profile is impressive, with 14.8% of residents holding an advanced degree
(142% of the national standard). Poverty rates are low and per capita and
median household income metrics 20%-30% above the state and national norms.
There are four Fortune 500 companies headquartered in Cobb County including
The Home Depot, Coca-Cola Enterprises, Genuine Parts (NAPA) and First Data.
The county is also home to several military-related operations, most notably
Lockheed Martin (LM). In late 2013 LM announced significant companywide job
cuts as well as plant closings and consolidations, but none impacting its
Marietta facility which has employed a fairly stable 6,900 (about 2% of the
county employment base) since layoffs in 2012. The tax base as a whole is
fairly diverse; the 10 largest taxpayers represent less than 7% of the total
LOW DEBT BURDEN
The overall debt burden is estimated at $434 per capita and 0.4% of market
value. Carrying charges for debt, pension and OPEB are low, approximating 13%
of governmental fund spending. The county's notably low debt levels are the
result of significant pay-as-you-go contributions. 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 by an
extremely narrow margin a four-year extension of the SPLOST through Dec. 31,
2015 estimated to generate $492 million in revenue largely for transportation
($379 million). The inability to renew or replace the current SPLOST
authorization would likely pressure debt levels and the county's tax rate,
although Fitch believes this risk could be managed over a short period of
BRAVES STADIUM FINANCING NOT EXPECTED TO PRESSURE CREDITWORTHINESS
Future borrowing plans center on the expected sale of approximately $368
million of revenue bonds through the Cobb-Marietta Coliseum & Exhibit Hall
Authority (the authority) to finance a portion of the cost of a new $672
baseball stadium for the Atlanta Braves. The county expects to enter into an
intergovernmental agreement with the authority pursuant to which it will
pledge its full faith and credit and unlimited taxing power to the repayment
of this debt. The club will cover the remainder of the construction costs plus
$400 million to develop an entertainment district containing retail,
restaurant, and hotel space around the stadium. The stadium and surrounding
mixed-use development is scheduled to be finished before the start of the 2017
Fitch does not anticipate negative rating implications as a result of this
borrowing despite its view that the project is outside of the scope of
traditional general government capital endeavors. Debt levels will
subsequently double but still remain very low. Debt service is estimated at
$24 million annually, not insignificant but manageable at roughly 4% of
governmental fund spending. The Braves are expected to pay $6.9 million of the
annual debt service with the majority of other funds coming from existing or
enacted hotel, rental car, and property taxes generated within several
community improvement districts around the stadium. The county could also
divert a portion of the current property tax millage, if necessary, related to
$8.5 million of annual debt service on outstanding county GO bonds that mature
PENSION FUNDING REMAINS WEAK BUT NOT A MAJOR CONCERN
Funding for the county's pension plan remains extremely weak for the rating
level. The reported funded ratio was 52.9% as of the latest valuation (Jan. 1,
2013). Fitch's adjusted funded ratio (lowering the 8% rate of return
assumption to 7%) results in a funded position estimated at 47.7%. The
adjusted unfunded actuarial accrued liability approximates $456 million or a
manageable 0.6% of market value. Since 2008 the county has taken numerous
measures aimed at improving the funded ratio over the longer term, most
notably increasing employee contributions and closing the plan to new hires
after Dec. 31, 2009. The county has funded 113% and 121%, respectively, of the
actuarial required contribution (ARC) over the last two years after
underfunding the ARC from fiscal 2009-2011. The county fully funds the ARC for
OPEB and established an OPEB trust in 2008 with a fair market value of $77.5
million in fiscal 2013. 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'.
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Michael Rinaldi,+1 212-908-0833
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Patricia McGuigan,+1 212-908-0675
Amy Laskey,+1 212-908-0568
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
Press spacebar to pause and continue. Press esc to stop.