MRO Magazine

Fitch Rates Chesterfield County, VA’s $88.28MM GOs ‘AAA’; Outlook Stable


August 12, 2015
By Business Wire News

NEW YORK

Fitch Ratings has assigned an ‘AAA’ rating to the following Chesterfield County (the county) Virginia general obligation (GO) bonds:

–$32.795 million GO public improvement bonds series A of 2015;

–$55.485 million GO public improvement refunding bonds series B of 2015.

The bonds are expected to price on August 18 via competition. The series A bond proceeds will be used to pay the costs of capital school improvements. The series B bond proceeds will be used to provide for the refunding of certain outstanding GO bonds for debt service savings.

In addition, Fitch affirms the following ratings:

–$329.3 million outstanding GO bonds at ‘AAA’;

–$43.25 million outstanding certificates of participation (COPs) at ‘AA+’.

Also, Fitch affirms the following ratings of the Chesterfield County Economic Development Authority, VA (EDA):

–$4.85 million public facility revenue refunding bonds series 2010A at ‘AA’;

–$6.7 million taxable recovery zone economic development revenue bonds series 2010B at ‘AA’.

The Rating Outlook is Stable.

SECURITY

The GO bonds are general obligations secured by the full faith, credit and unlimited taxing power of the county.

The COPs are secured by lease rental payments subject to annual appropriation by the county and a lien on essential government property.

The EDA revenue bonds are payable solely from payments to be made by the county under a support agreement, subject to annual appropriation.

KEY RATING DRIVERS

DIVERSE ECONOMIC BASE: Ample land supply and favorable location within the Richmond metropolitan area show prospects for continued development and expansion. Solid economic indicators include stable unemployment rates below the national average and above-average wealth levels.

STRONG FINANCIAL PERFORMANCE: Sustained excellent in financial management and planning has resulted in consistently positive financial operations and ample reserve levels.

LOW DEBT BURDEN, AFFORDABLE RETIREE COSTS: Overall debt levels are low, attributable in part to a solid history of pay-as-you-go capital financing. Pension and OPEB costs are modest and do not pressure the credit.

‘AA+’ COPs RATING: The ratings on the COPs are notched down from the county’s ‘AAA’ GO rating, reflecting risk inherent in the annual appropriation of lease rental payments partially offset by the essential nature of the government assets securing bondholders.

‘AA’ RATING ON EDA REVENUE BONDS: A two-notch distinction from the county’s GO rating reflects risk to annual appropriation not offset by a security interest in an essential government asset.

RATING SENSITIVITIES

MAINTENANCE OF STRONG BALANCES: Significant deterioration in financial reserves would indicate fiscal pressure inconsistent with the current rating. Fitch views this as unlikely, given the county’s strong resource base and history of solid financial management.

CREDIT PROFILE

Chesterfield County (2014 population of 332,499) is located southwest of Richmond, the state’s capital. The population has increased by a strong 5% since 2010.

VIBRANT EMPLOYMENT BASE

The county serves as an integral part of the commonwealth’s economically vital capital region. The county’s highly skilled and well-educated labor force not only fills the area’s government and professional positions but also meet the demands of its own diverse and growing employment base. Major employers within the county include high-tech synthetic fibers manufacturing, retail food distribution, and health care.

SOLID ECONOMY; REBOUNDING HOUSING

The county’s local economy remains solid. The employment base continues to grow as its existing employers expand and new investment continues. Philip Morris USA, one of the county’s top taxpayers, is investing over $50 million to establish a tobacco leaf storage warehouse complex on 118 acres and creating 30 new jobs. During fiscal 2015, Shandong Tranlin Paper Company announced they will invest $2 billion over five years to establish their first U.S. advanced manufacturing operation creating 2,000 new jobs by 2020. The county’s unemployment rate as of May 2015 was 4.9% which is below the region and nation and on par with the state.

Current housing forecast reflect the area’s desirability for residential and commercial development. Although the county’s taxbase has experienced declines in recent years, current trends are positive. County officials are projecting a 5% increase for calendar 2016.

AMPLE FINANCIAL FLEXIBILITY

Conservative budgeting and strong reserves underscore the county’s sound financial management and inherent financial flexibility. Reserves are consistently well above the county’s fund balance target of 8% of spending. The county has attained positive operating margins without resorting to service reductions or other severe spending cuts, providing notable flexibility should it be required.

Fiscal 2014 ended with an operating surplus of $14.2 million or approximately 2% of spending. Unrestricted fund balance (the sum of assigned, unassigned and committed under GASB 54) equaled a robust 35% of spending. Unassigned fund balance of $55.0 million represents 8.2% of total general fund spending, maintaining a ratio that exceeds the county’s target ratio of 8.0%.

SOLID REVENUE-RAISING FLEXIBILITY

The county is not subject to any limitation on its property tax rate or levy. Typical of Virginia counties, property taxes produced approximately 54% of fiscal 2014 general fund revenue. Property tax revenues have fluctuated in recent years reflecting changes in the taxable assessed values. Given projected taxbase growth and a recent tax rate increase revenues should trend upward. While the average tax bill is higher than in neighboring communities, this reflects above-average wealth levels within the county.

MODEST SURPLUS OPERATIONS ANTICIPATED FOR FISCAL 2015

The $766 million fiscal 2015 budget, representing a 4.2% increase from the prior year, included increased funding for public safety and capital replacement expenses. A one-cent increase in the millage was utilized primarily to fund the increase of additional teachers to reduce classroom size. According to management, preliminary year-end results are positive relative to budget.

The $785.6 million fiscal 2016 budget represents a 2.5% increase from the prior year. The budget maintains the current tax rate and includes additional investments in public safety, education and maintenance of capital facilities.

Although multi-year financial forecasts show draw-downs in reserves, county officials have indicated that these calculations are meant to reflect what could occur if past prudent financial practices are not followed. Fitch believes that favorable past financial performance bodes well for realizing positive results in the coming years.

LOW DEBT BURDEN

Overall debt levels are low at $1,533 per capita and 1.4% of market value below the county’s $1,767 and 3% policy. Debt serving costs are affordable at approximately 8.6% of spending. Principal amortization is rapid, with 78% retired within 10 years. The fiscal 2016-2020 capital improvement plan (CIP) includes $500.87 million of general government and school projects. The plan will be $191.6 million debt financed with general obligation bonds authorized by a 2013 bond referendum. Given the county’s rapid amortization the additional debt should not materially impact the debt ratios.

Pension and other post-employment benefit (OPEB) contributions are low as a percentage of government spending. Pension contributions to the Virginia Retirement System (VRS) as well as the county’s supplemental retirement system equaled $37 million or approximately 5% of governmental spending in fiscal 2014. The county’s portion of VRS that is unfunded is modest at $217 million or less than 1% of taxable assessed value.

The county has attained full actuarial funding of its OPEB contribution and since fiscal 2008 has often exceeded its funding requirements. The fiscal 2014 OPEB annual required contribution equaled a modest 1.1% of government spending.

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

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989384

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989384

Endorsement Policy

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

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Fitch Ratings
Primary Analyst
Evette Caze
Director
+1 212-908-0376
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Barbara Rosenberg
Senior Director
+1 212-908-0731
or
Committee Chairperson
Laura Porter
Managing Director
+1 212-908-0575
or
Media Relations, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com