Fitch Rates Calvert County, MD's GOs 'AAA'; Outlook Stable
NEW YORK -- April 23, 2014
Fitch Ratings has assigned a rating of 'AAA' to the following general
obligation (GO) bonds of Calvert County, Maryland (the county):
--$9,035,000 consolidated public improvement bonds, 2014 series.
The bonds are scheduled for competitive sale on or about May 6. The proceeds
are being used to finance certain public improvements.
In addition, Fitch affirms the following ratings:
--$128 million of outstanding GO bonds of the county at 'AAA'.
The Rating Outlook is Stable.
The bonds are a GO of the county secured by its full faith and credit and
unlimited taxing power.
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: The general fund budgetary performance has generally
been positive over a prolonged period. Reserves are maintained at a prudent
level, and revenue control and flexibility are considered sound by Fitch.
MANAGEABLE LONG-TERM LIABILITIES: Debt metrics are low, as is the cost of
funding debt service, pension and other post-employment benefits (OPEB).
HIGH INCOME METRICS: Wealth levels as measured by median household income are
very strong, ranging from 28%-76% above state and national norms.
WASHINGTON D.C. MSA BEDROOM COMMUNITY: The county is part of the
Washington-Arlington-Alexandria metropolitan statistical area (MSA) and
benefits from a strong regional labor market with consistently low
unemployment rates. Moderate concentration exists in the local tax base.
STRONG CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics, including the county's prudent financial management
practices. The 'AAA' GO rating and Stable Outlook reflect Fitch's expectation
that such shifts are highly unlikely.
Calvert County is located in southern Maryland approximately 42 miles
southeast of Washington D.C. and 64 miles south of Baltimore. Calvert County
is located on a peninsula, bound on the east by the Chesapeake Bay and on the
west by the Patuxent River, with 110 miles of shoreline. The county has a 2013
estimated population of 90,500.
FINANCIAL POSITION REMAINS SOUND
The general fund produced essentially break-even results in fiscal 2013 and
concluded the year with an unrestricted fund balance of $58.9 million or a
healthy 26.2% of spending. The unrestricted fund balance includes the county's
stabilization reserve equal to $18 million or 8% of spending (the county's
policy requires the higher of $10 million or 8% of current budgeted
For fiscal 2014, the budget included a fund balance appropriation of $2.6
million. Year-to-date projected year-end results show a $2.98 million
operating deficit as well as approximately $2.78 million in pay-go spending.
The increase in the use of fund balance was due to an increase in weather
related expenses. The unrestricted balance is expected to remain ample at
$55.9 million or 24.2% of spending. Fitch considers this projection
reasonable, based on management's history of prudent and conservative
The recommended fiscal 2015 budget expends a total of $5.9 million of fund
balance-- $2.4 million for non-recurring capital costs and a $3.5 million
contribution to OPEB. Operating revenues are reasonably forecast to increase
2% from fiscal 2014 year-to-date projections. No tax rate increases or other
material revenue enhancements are recommended.
FITCH EXPECTS COUNTY TO ADDRESS FORECASTED GAPS
The county prepares multi-year financial projections that depict the fiscal
2015 $5.9 million deficit increasing to $12.96 million by fiscal 2017. Fitch
notes that recently forecast deficits have not materialized, as the county
tends to be conservative on both the revenue and expense side. The deficits
are largely driven by increased debt service, pension, and insurance costs but
include certain expense items considered more flexible by Fitch--including
pay-go capital ($1.77 million-$2.6 million per year) and OPEB pre-funding
($3.5 million in fiscal 2015 reaching $12 million by fiscal 2019).
Property taxes are the largest revenue source for the county at more than 63%
followed by income tax at 30%. The generation of property tax revenue is not
subject to a cap or limit, and the tax rate is competitive with other
governments in the region. The income tax rate is capped at 3.2% and the
county's current rate is 2.8%. The county has prepared an alternative plan
that includes an increase to the property and income tax rates which would
significantly reduce future budget gaps. However, Fitch notes the last
increase occurred in 1987; therefore, the willingness to increase the rate
remains unproven. Expected payment-in-lieu-of-taxes from Dominion Resources'
expansion of its Cove Point LNG terminal in the county also should help close
the projected gaps; completion of the facility is expected in 2017.
MANAGEABLE LONG-TERM LIABILITIES
Overall debt levels are low at about 1% of market value and $1,468 per capita,
and the county very aggressively repays its outstanding debt (close to 90%
within 10 years)--providing capacity to fund future borrowing needs without
significantly increasing resources.
Fitch estimates the cost of servicing the county's outstanding debt, combined
with all pension contributions and the current cost of OPEB consumes about 10%
of fiscal 2013 governmental fund spending, which Fitch considers affordable.
The funded status of the county's single-employer pension plans is on the low
side on a combined basis (75% as reported by the county but 68% as calculated
by Fitch utilizing a 7% rate of return), but the size of the liability is
quite small and the county plan for general employees was closed in 1996. As
of June 2013 OPEB were 11.8%, the county plans to reach full funding by 2019.
ABOVE-AVERAGE SOCIOECONOMIC FACTORS
Calvert County's unemployment rate remains very low (4.7% in December of
2013), but this is due in part to the labor force and employment total
contracting modestly over the past year. Concerns about employment declines
are mitigated by the county's proximity to larger regional employment centers,
reflected in the approximately 63% of county workforce that commute outside
its boundaries. Income levels are very high, but recent growth has been
The two largest private sector influences on the county economy and budget are
Constellation Energy Group's Calvert Cliffs nuclear power plant and Dominion's
Cove Point LNG facility. Constellation and Dominion account for 15% of the
county's tax base, but a higher 18% of general fund revenue. The significant
amount of investment associated with these utility operations and the
essential service provided somewhat mitigate this concentration risk. Dominion
is in the process of receiving regulatory approval for its estimated $3.8
billion Cove Point facility expansion. A Calvert Cliffs expansion project is
currently undergoing regulatory review, with an estimated construction cost of
between $4 billion and $7 billion.
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, Maryland
Department of Business & Economic Development, Real Estate Business
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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