Fitch Affirms Washington County, VA’s Implied GO Rating of ‘AA-‘; Outlook Stable
February 5, 2016 | By Business Wire News
NEW YORK
Fitch Ratings has affirmed the ‘AA-‘ implied GO rating for Washington County, VA (the county). The Rating Outlook is Stable.
SECURITY
Unlimited Tax GO implied.
KEY RATING DRIVERS
SOLID FINANCIAL PROFILE: Conservative budgeting and a willingness to raise revenues have resulted in consistently sound reserve and liquidity levels, even with occasional fund balance drawdowns.
MANUFACTURING DEPENDENT ECONOMY: The employment base relies heavily on manufacturing with contributions from the government sector. The county’s position as a small regional hub provides supplementary employment in the retail and medical sectors. Socio-economic factors are mixed, with unemployment historically below the national averages yet above the state. Wealth metrics are well-below both state and national averages.
MODEST DEBT BURDEN: The county’s debt ratios are expected to remain low given average amortization and the absence of any future borrowing plans.
MAINTENANCE OF STRONG FINANCIAL PROFILE: The rating is sensitive to the county’s continuing to maintain a solid financial position, including strong reserves, despite planned drawdowns.
CREDIT PROFILE
Located in southwest Virginia, Washington County (population 54,729) is part of the Kingsport-Bristol-Bristol, TN – VA CSA, commonly known as the ‘Tri-Cities’ region.
AMPLE RESERVE LEVELS
Conservative budgetary management has enabled the county to maintain healthy reserves and liquidity. At year-end the unrestricted general fund balance totaled $21.76 million or an ample 33.3% of spending. Despite the intentional use of reserves in recent years, management plans to keep reserves at or above the fund balance goal of 12-15% of spending, which is adequate for the current rating category. The county concluded fiscal 2015 with an $833,987 operating deficit (1.3% of general fund spending) well below the planned $2.8 million budgeted use of reserves. Positive budget variances were mostly due to underspending in the areas of education and health and welfare.
The Fiscal 2016 budget assumes that revenues and expenditure remain in line with those of recent years, with the exception of a slight increase in expenditures for capital improvements. Year to date figures indicate that revenues have outpaced expenditures through the first half of FY 2016. The county does not anticipate utilizing the $1.5 million of fund balance appropriated in the 2016 budget.
Property taxes are the county’s largest operating revenue source at 30% of the fiscal 2015 total.
The county’s property tax rate is not limited by statute as to rate or levy affording the county revenue flexibility. Tax collection rates are strong at 96.8%. During fiscal year 2014 the county increased the personal property tax rate, generating an additional $800,000 of recurring revenue.
ECONOMY LED BY MANUFACTURING
The county’s inclusion in the ‘Tri-Cities’ region has permitted it to expand employment opportunities beyond its relatively narrow manufacturing base and reliance on the local government sector, into the retail sector. Within the county, six of the leading employers are manufacturers, including the third largest employer, Bristol Compressors International Inc. Other top employers include local medical and education institutions, as well as several other manufacturing companies.
The county has a 5.3% sales tax rate, intended to provide retail destinations that are attractive to residents of northern Tennessee, where the average sales tax rate is 9.5%. The retail and health care sectors have helped position the county as an employment hub within the Tri-Cities region. County residents benefit from employment opportunities in the expanding education and health care industry located in neighboring Johnson City, Tennessee (GO bonds ‘AA’/Stable Outlook).
The county’s November 2015 unemployment rate of 4.2% falls below the 4.8% rate of the nation although exceeds the 4% rate of the state. The county’s rate declined from 5.3% over the summer, reflecting a seasonal downturn. Wealth levels are approximately 80% – 90% of the nation’s and 65% – 75% of the state’s.
FAVORABLE DEBT POSITION
Overall debt levels are low at $546 per capita and 0.6% of market value. Amortization is above average with 60.1% of principal retired within 10 years. Currently, there are no plans for new money issuances. The county does not have a formal capital improvement plan.
Long-term obligations do not pressure the credit. All full-time salaried county employees participate in the Virginia Retirement System, a defined benefit pension plan. The county’s contributions are actuarially calculated and were fully contributed in fiscal 2015. For the primary government, pension assets covered 84.9% of pension liabilities at the plan’s 7% discount rate as of June 30, 2015. The net pension liability for the primary government is $6.5 million or a low 0.1% of market value; these figures exclude pensions associated with the school board.
For other post-employment benefits (OPEB), county employees receive an implicit subsidy plus a minimal annual credit. Total county carrying costs, inclusive of debt service, pension contributions and OPEB costs, equaled a low 5% of spending in fiscal 2015.
Additional information is available at ‘www.fitchratings.com‘.
Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and
Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings, dated Feb. 2, 2016). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published in the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis, CreditScope, IHS, and Zillow Group.
Applicable Criteria
Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875108
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
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
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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999160
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999160
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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