Fitch Rates Iredell County, NC’s GOs ‘AA+’; Outlook Stable
By Business Wire News
By Business Wire News
Fitch Ratings has assigned an ‘AA+’ rating to the following general obligation (GO) bonds of Iredell County, North Carolina (the county):
–$36.7 million GO school bonds, series 2015C.
Series 2015C bond proceeds will be used to fund school construction projects. The bonds will be sold competitively on Oct. 6.
In addition, Fitch affirms the ‘AA+’ rating on $46.6 million of outstanding county GO bonds:
–GO community college bonds, series 2008;
–GO public improvement and school bonds, series 2006;
–GO taxable school bonds, series 2015A;
–GO refunding bonds, series 2015B.
The Rating Outlook is Stable.
The bonds are a general obligation of the county backed by its full faith, credit and unlimited taxing power.
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: Strong financial management and conservative budgeting have led to the maintenance of sound reserve levels, providing the county with ample financial flexibility. Furthermore, the county has broad revenue raising capacity and spending demands are viewed as manageable.
MANUFACTURING CONCENTRATION: The county’s economic base is dominated by manufacturing and has been susceptible to periods of high unemployment relative to the state and U.S. However, a favorable location in close proximity to Charlotte promotes expectations for relatively stable growth in population, tax base, and employment over time.
MANAGEABLE LONG-TERM LIABILITIES: The overall debt burden is expected to remain at low to moderate levels reflecting the county’s sizable capital plan but rapid amortization of existing debt. Pension and other post-employment obligations (OPEB) do not pressure the rating.
STRONG FINANCIAL PROFILE: The rating is sensitive to a material shift or weakening of the county’s strong financial management practices and reserve position.
Iredell County is located in the Piedmont region of North Carolina, immediately north of Mecklenburg County. Statesville, the county seat, is about 45 miles north of Charlotte and southwest of Winston-Salem.
SOUND FINANCIAL CONDITION
Fiscal 2014 marks the fourth consecutive year of positive operating results (after transfers) reflecting management’s conservative budgeting practices, a growing revenue environment and no notable expenditure pressures. The unrestricted general fund balance increased to $43.8 million or a strong 27.5% of spending (excluding refunding activity). An additional $17 million of fund balance is restricted by state law for receivables, but Fitch considers it to be an available resource that, when included, increases the county’s reserves to 38.2% of spending. While the county currently does not have a formal reserve policy, management targets a minimum reserve of 18%.
FAVORABLE OPERATING PERFORMANCE PROJECTED
Preliminary fiscal 2015 operating results are essentially breakeven. Management is projecting a $706,294 (0.3% of spending) deficit after transfers; transfers out included $12.9 million for various public safety and courthouse projects.
The fiscal 2016 general fund budget is a notable 10.5% over fiscal 2015. The budget increase will be funded by a 9% tax rate increase (approximately $8.9 million in additional revenue). The County is using the tax rate increase to establish a reserve to fund increasing debt service costs related to current and future bond issuances. The budget also includes up to 3% salary increases and new positions. Property taxes make up the bulk of general fund revenue (55%). The fiscal 2016 tax rate of $0.5275 per $100 of assessed value (AV) is well below the state cap of $1.50 per $100 of AV providing the county ample revenue flexibility.
TAV has experienced minimal growth over the last several years. The decline in fiscal 2015 TAV reflects 16 months of vehicle tax valuation in fiscal 2014 and incorporates a decline in personal property due to depreciation of equipment. Management forecasts growth of 1%-1.5% over the next several years, which Fitch views as reasonable given several projects planned or currently underway within the county and permit activity.
PROXIMITY TO CHARLOTTE FUELS GROWTH
The southern portion of the county has proven a desirable commuter suburb of Charlotte, particularly the area around Lake Norman. Fitch believes that the county’s proximity to Charlotte as well as its competitive tax rate enhances its intermediate and long-term potential for expansion. Population grew a sizable 30% in the decade ending 2010, and 4.5% since to 166,675 in 2014.
The manufacturing sector is a key component of the local economy at 16% compared to approximately 9% for the nation. Existing manufacturing continue to make moderate investments in the county; Windecker Aircraft will be investing $3-$6 million in its existing facility and adding 58 new jobs, and Steel Tube Inc. an additional $2.3 million and 20 new jobs. Unemployment has shown improvement due to job growth. The 5.8% June 2015 unemployment rate is below the 6.3% a year prior. Both education and income levels are below national medians.
LOW DEBT LEVELS
The county’s overall debt levels are low at $2,128 per capita and 1.7% of market value. The county intends to issue a significant $91.5 million of debt (compared to approximately $226 million currently outstanding) through 2018 for various school construction and renovation projects. Debt levels are not expected to increase appreciably over the next several years despite the issuance plans given the rapid amortization of existing debt (77% of principal is repaid within 10 years).
The county is also contemplating a $17 – 23 million jail expansion project and the construction of a $8.8 million public safety complex within the next one to three years that will be funded from the respectively capital project’s fund balances and pay-go capital spending.
AFFORDABLE PENSION AND OPEB COSTS NOT A CREDIT PRESSURE
The county’s contribution to various pension plans consumed approximately 2.4% of total governmental spending in fiscal 2014. The bulk of the annual cost is related to the county’s participation in the Local Government Employees’ Retirement System, which is among the strongest-funded state pension systems. The county funds OPEB on a pay-go basis which accounts for less than 1% of the budget. All costs are expected to remain stable in the near term. Total carrying costs (including debt service, pension and OPEB costs) were moderate at 18.8% of governmental spending in fiscal 2014, largely owing to debt and the rapid repayment of outstanding principal.
Additional information is available at ‘www.fitchratings.com‘.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 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 Fitch’s applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Sandro Scenga, +1 212-908-0278