Fitch Affirms Rockingham County VA’s Implied General Obligation Rating at ‘AA’; Outlook Stable

NEW YORK

Fitch Ratings has affirmed Rockingham County, Virginia’s (the county) implied general obligation (GO) rating at ‘AA’.

The Rating Outlook is Stable.

SECURITY

The rating is based on an implied unlimited tax GO of the county.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Sustained excellence in financial management and planning has resulted in ample reserve levels.

STRONG MANUFACTURING PRESENCE: The county’s economic base is heavily concentrated in manufacturing. However, ample land supply and a favorable location within the Harrisonburg-Rockingham metropolitan area should promote continued development and expansion.

BELOW-AVERAGE WEALTH INDICATORS: The employment base supports relatively low unemployment rates but wealth levels are below average.

FAVORABLE DEBT PROFILE: Overall debt burden is expected to remain low due to modest additional debt plans.

RATING SENSITIVITIES

FINANCIAL PROFILE DETERIORATION: Fitch expects the county to retain its high reserve position to counterbalance concerns over the limited economy and below-average wealth levels, credit factors that Fitch believes limit the rating to its current level.

CREDIT PROFILE

The County of Rockingham, located in the heart of the Shenandoah Valley, is the third largest county in Virginia in land area with 854 square miles and an estimated 2014 population of 78,171.

SMALL MANUFACTURING-BASED ECONOMY

The largest employment sector is manufacturing at 23% of total employment. However, the manufacturing base has remained stable and companies vary, including Cargill (poultry processing), R.R. Donnelly (book printing) and MillerCoors (brewery). Higher education also has a major presence and adds stability within the area through James Madison University, located just outside the county’s boundaries. The university has a growing 2013 enrollment of approximately 20,855.

The county has announced $128 million in private capital investment in the last year. Whitewave, a dairy processor, is completing a $52.8 million expansion that will add 54 jobs. Shenandoah Growers is completing a $10.7 million expansion which will add 15 new jobs. Recent transportation enhancements are expected to attract additional capital investment and jobs.

MODERATELY CONCENTRATED STABLE TAX BASE

The county’s tax base is moderately concentrated with the top 10 taxpayers accounting for 14.2% of assessed valuation and the top taxpayer accounting for merely 5%. This is somewhat offset by the fact that a number of the top taxpayers have made considerable capital investments over the past five years.

Following the reassessment in 2014, market value increased about 1% to an estimated $9.45 billion, after three consecutive years of market value growth. Wealth levels are mixed but property values on a per capita basis are sound. The poverty rate is low and the unemployment rate is below the state and nation.

SOUND FINANCIAL MANAGEMENT

The county maintains a healthy level of financial flexibility with consistently solid general fund reserve balances. Management retains independent revenue raising flexibility as there are no statutory tax limitations in Virginia, further enhancing financial flexibility. Additional flexibility is derived from regular capital spending from the general fund and an ample capital projects fund balance that could be used by the general fund with approval by the board of supervisor.

The county ended fiscal 2014 with a moderate deficit of $1.7 million net of $4 million in transfers out to the capital projects fund in contrast to the $5.7 million appropriated fund balance. The positive results reflect continued careful cost management, budgeted savings due to vacant positions, and lower debt service costs. The unrestricted fund balance totaled $25.2 million (a sound 22.8% of spending) at fiscal year-end, comfortably exceeding the county’s 15% reserve policy. The capital projects fund balance totaled $22 million or a strong 21% of general fund spending.

FISCAL 2015 RESULTS SHOW MODEST DEFICIT

The fiscal 2015 $111.5 million general fund budget is essentially flat year-over-year and includes a 2-cent tax rate increase that took effect during June 2015. Management conservatively projects a modest deficit of $693,314, an amount less than the originally budgeted $3.8 million of appropriated fund balance.

The fiscal 2016 budget is a 6% increase over fiscal 2015. The budget includes the 2-cent tax rate increase and a $3.3 million fund balance appropriation. The budget increase funds an educational technology initiative for the school system as well as increased public safety costs related to the new jail agreement to become a member of a regional jail authority due to overcrowding at the local facility. Given the county’s history of conservative budgeting, operations are expected to continue to be positive relative to budget and reserves to remain ample.

MODEST DEBT LEVELS

Fitch expects overall debt ratios (1.02% of market value or $1,227 per capita) will remain modest given the absence of any notable additional borrowing plans. Debt ratios include the county’s portion of the guaranty agreement of Harrisonburg-Rockingham Regional Sewer Authority’s debt as well as solid waste and sanitary district debt as the utility systems are currently not self-supporting. Debt service expenditures account for an affordable 11% of total governmental fund spending and amortization is above average (68% in 10 years).

The county’s 2016 – 2020 capital improvement plan (CIP) totals $164.7 million. Approximately one-third of the plan funds public safety projects – mostly related to jail facility expansions and upgrades.- while another third funds utility expansions. The majority of the remainder of CIP expenditures are to fund school capital projects. All of the school projects will be funded with debt issued by the Virginia Public Schools Authority, public safety projects will be funded mostly with state funds and moneys from the city of Harrisonburg, while utility projects will be funded with debt and cash on hand.

PENSION AND OPEB COSTS ARE LOW

Pension and other post-employment benefit (OPEB) costs consume a low 3.1% of total government fund spending. Pension costs are derived from the county’s participation in the Virginia Retirement System. Fitch notes that the funded ratio for the county’s portion of the state pension plan is 75.7% on a reported basis; the county applies a 7% investment return assumption. The county funds its OPEB obligation on a pay-as-you-go basis. As of July 1, 2011, the OPEB unfunded actuarial accrued liability totaled $4.7 million or a very low 0.07% of market value.

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, and Virginia Employment Commission.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988225

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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