Fitch Rates James City County, VA’s GOs ‘AAA’ & Lease Revenue Bonds ‘AA+’; Outlook Stable

NEW YORK

Fitch Ratings assigns ratings to James City County, Virginia’s (the county) bonds as follows:

–$4 million general obligation (GO) school refunding bonds, series 2015A ‘AAA’;

–$11.5 million GO school refunding bonds, series 2015B ‘AAA’.

Fitch has also assigned an ‘AA+’ rating to the Economic Development Authority of James City County, Virginia’s $52 million lease revenue refunding bonds, series 2015.

GO bond proceeds will be used to refund series 2005 and series 2006 GO bonds. Lease revenue bond proceeds will be used to refund series 2006 lease revenue bonds. The refundings are for debt service savings. The GO bonds and lease revenue bonds will sell via public bid the week of July 21.

Fitch also affirms the following ratings:

–$56 million of James City County GO bonds at ‘AAA’;

–$88 million of Economic Development Authority of James City County lease revenue bonds series 2006, series 2009 and series 2012 at ‘AA+’;

–$27 million of Economic Development Authority of James City County lease revenue bonds series 2005 and series 2014 at ‘AA’.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by the county’s pledge of its full faith and credit and its unlimited taxing power.

The lease revenue bonds are limited obligations of the Economic Development Authority of the County of James City, VA payable solely from payments to be made by the county to the trustee. Payments are subject to annual appropriation by the county board. The deed of trust for the series 2015 bonds includes a security interest in essential government assets.

KEY RATING DRIVERS

SOUND FINANCIAL MANAGEMENT: James City County’s financial condition benefits from healthy reserves and consistent fiscal policies.

FAVORABLE DEBT PROFILE: Overall debt levels should remain moderately low due to the county’s limited capital needs, commitment to pay-as-you-go capital funding, and rapid amortization.

STABLE LOCAL ECONOMY: The local economy consists primarily of light manufacturing, services, and trade, the last reflecting the regional importance of tourism. Economic indicators are solid and unemployment is below average.

LEASE REVENUE BOND RATING DISTINCTION: The distinctions in ratings among lease revenue bonds are based on the presence and essentiality of leased assets.

RATING SENSITIVITIES

RATING STABILITY EXPECTED: The ratings are sensitive to shifts in the county’s financial reserves and long-standing history of strong financial management practices. The Stable Rating Outlook reflects Fitch’s expectation that these shifts are unlikely.

CREDIT PROFILE

James City County is located in southeastern Virginia, equidistant from Richmond and Norfolk, and has a 2014 population of 72,583, reflecting an 8.3% increase since the 2010 census.

STABLE ECONOMY WITHIN HAMPTON ROADS REGION

The county’s economy is stable and diverse. Recreation, food services and accommodation account for approximately 26% of the employment base. This is mostly due to local tourism venues such as Busch Gardens and the historical attractions at Jamestown, Yorktown and Colonial Williamsburg. A light manufacturing presence is centered upon Anheuser-Busch InBev (senior unsecured rating of ‘A’ by Fitch), the county’s largest taxpayer, and related industries. Several industrial parks add further economic diversification.

Wealth levels are high, with median household income equal to 120% and 145% of the state and national medians, respectively. The unemployment rate rose only minimally during the recession and as of March 2015 was a favorable 5%. Proximity to the College of William and Mary, the Thomas Jefferson National Accelerator Facility, and NASA’s Langley Research Center contribute to the county residents’ exceptionally high education levels.

Estimated taxable assessed value (TAV) totals $12.3 billion for the fiscal 2016 levy and the TAV per capita is a high $169 thousand. Values have been stable over the past years. The tax based is reassessed every two years and experienced minimal declines during the economic downturn. Property tax revenues are the county’s largest revenue source at over 64% followed by sales taxes (6%) other local taxes (6%) that include meals, lodging, business licenses and recordation taxes.

SOUND RESERVES, GOOD BUDGETARY FLEXIBILITY

The county’s financial position is strong, characterized by ample reserve and liquidity levels and supported by strong financial management. Fiscal years 2010 through 2012 ended with net general fund operating surpluses, followed by two years of modest reserve use in fiscal 2013 (1.7% of spending) and fiscal 2014 (1.6%) for planned capital spending.

The fiscal 2014 unrestricted general fund balance at year-end of $37.8 million was a favorable 21.7% of spending. The majority of general fund revenues are from property taxes (64%). In Virginia, the real property tax rate is not subject to limitation. The county conservatively budgeted both fiscal 2014 revenues and expenditures, the favorable variances enabled an increase in transfers out to the capital projects fund. The total transfers to the capital projects fund was $5 million, approximately 3% of general fund spending. At the close of fiscal 2014 the capital projects fund held substantial available reserves (over $14 million) accumulated for paygo funding.

MODERATE RESERVE USE FOR CAPITAL IN FISCAL 2015

The fiscal 2015 general fund budget was a 2.2% year-over-year increase over the fiscal 2014 budget. The budget funded an increased allocation to Williamsburg-James City County Schools, a base salary increase of 1% for eligible county employees and increase in the county’s contribution to health and dental premiums. The property tax rate remains unchanged at a competitive $0.77 per $100 of assessed value (AV). The budget included a $3.1 planned draw on capital reserves held within the general fund. Management reports operating expenses are expected to come in under budget. and the total change in fund balance at year end is expected to be a $1 million decline. The unassigned balance is expected to remain stable.

SUBSTANTIAL DEDICATED TAX INCREASE IN FISCAL 2016

The fiscal 2016 budget includes a 9% property tax rate increase (7 cents per $100 valuation), which is expected to generate approximately $7.8 million in additional revenue. The new funds are targeted for specific needs, largely capital related, including county and school capital maintenance and stormwater projects. The general fund budget is balanced for operations, although a modest amount of reserve use ($1 to $2 million) is likely for capital spending. The county recently strengthened its fiscal policy to maintain an unassigned general fund balance of 10% to 12% of general fund expenditures, a policy to which Fitch expects the county will adhere to.

AFFORDABLE DEBT PROFILE

Fitch expects overall debt levels to remain moderately low given the county’s comprehensive planning and debt affordability guidelines. Overall debt equals $2,417 per capita and 1.4% of market value, well below the county’s policy of 3%. The rapid amortization of nearly 75.1% in 10 years offsets concerns about the elevated (12.7%) debt service as a percent of total governmental fund expenditures. Additionally, the county’s general fund supports school purpose debt, but school operations are a component unit. Thus the percent of spending for debt service is somewhat elevated since not all school costs are reflected in county general governmental expenditures.

The county’s policy is to maintain debt service as a percentage of total general fund and school component unit revenues at 12% or below. The county has been in compliance with this policy since fiscal 2012.

The county’s fiscal year 2016-2020 capital improvement plan (CIP) totals approximately $77 million, with the largest spending needs for schools ($42 million). A $25.5 million debt issuance is planned for fiscal 2016 for the construction of a new middle school. This is the only debt financing planned as the majority of the CIP is supported by pay-go. Debt ratios are expected to remain low.

The county provides pension benefits via the state-wide Virginia Retirement System (VRS), an agent multi-employer defined benefit plan. As of June 30, 2014, the county’s portion of the plan is adequately funded at 83% reflecting the plan’s assumed 7% investment return assumption. The unfunded actuarial accrued liability of $27 million is a minimal .2% of the county’s taxbase. For fiscal 2014 the $6.7 million pension cost equaled a modest 3.4% of governmental fund spending. The county’s OPEB costs accounts for a low 0.2% of spending since the county only provides an implicit subsidy. Carrying costs for combined debt service, pension ARC and OPEB were moderate at 16% of governmental fund spending in fiscal 2014.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight.

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

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