Fitch Rates Pittsylvania County, VA GOs ‘AA’; Outlook Stable
By Business Wire News
Fitch Ratings has assigned an ‘AA’ rating to the following general obligation (GO) bonds of Pittsylvania County (the county), VA:
–$36.5 million GO refunding bonds, series 2015.
The bonds are scheduled to sell competitively on August 12. Proceeds will be used to refund the series 2007 and 2008B bonds for debt service savings.
The Rating Outlook is Stable.
The bonds are payable from a pledge of the county’s full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Revenue and spending flexibility is strong and reserve levels have remained consistently very high.
LOW LONG-TERM LIABILITIES: Debt, pension and other post-employment (OPEB) liabilities are expected to remain low.
DIVERSITY OF MANUFACTURING CONCERNS: The county’s economic resource base is grounded in manufacturing, government and services. Employment has expectedly shown volatility through economic cycles with longer term trends showing a very slow decline. Population has been generally stable. The area continues its long-term absorption of employment and tax base impacts associated with the loss of textile-based industries.
FINANCIAL PROFILE WEAKENING: Failure to maintain strong reserves would weaken credit strength. The Stable Outlook indicates Fitch expects Pittsylvania’s financial position will remain strong.
The county is located in the south central area of the state, on the North Carolina border. Part of the Danville statistical area, the county’s 2014 population of 62,383 has been stable.
STRONG FINANCIAL FLEXIBILITY
Conservative budgeting, strong reserves, ample liquidity, and absence of tax limits contribute to a strong financial profile. Formal county financial policies require maintenance of an unassigned general fund balance at a minimum of 20% of average general fund expenditures for the past three years. At the close of fiscal 2014 the unrestricted general fund balance was a sizable 55% of spending.
Property taxes are the dominant revenue source, accounting for 52% of fiscal 2014 revenue. Tax base growth and periodic millage adjustments support generally steady levy growth. The county has several other local taxes, including sales taxes, consumer utilities taxes, and meals taxes, which have also seen steady growth. The primary expenditure is for schools, and the county funds education in excess of the state mandated level.
The county is projecting favorable budget variance in fiscal 2015 on both revenues and expenditures, and a modest increase to the high unassigned general fund balance. The 2016 adopted budget is less than a 1% increase over the fiscal 2015 budget. The budget appropriates $1.1 million of reserves for one-time capital projects. In addition, the county expects to use almost $5 million of reserves to pay down an outstanding note. Reserves are expected to remain very strong.
ECONOMIC BASE GROUNDED IN MANUFACTURING
The largest land area county in the state, Pittsylvania county is served by a number of major highways, supporting general economic stability. High-speed broad band access traverses the county, attracting more data-intensive firms. A high 17% of employment in the county is in manufacturing. Larger private employers include Swedwood (an IKEA furniture plant), Unique Industries (paper cups and napkins) and Intertape Polymer (packing and construction products). Agriculture also plays a role in the local economy, the county is among the top ranking farming counties in the state. Principal agricultural land uses are tobacco, corn, wheat and livestock.
Over the past 10 years the tax base has been notably resilient, with a decline registered in only one year (a minimal 0.2% in fiscal 2012). There is no taxpayer concentration. Tax base per capita is a moderate $72,000. Housing costs in the county are low as county home values are well below (48%) the national median. Income levels trail the nation as well; however, the county poverty rate of 14.5% is just below average (the national rate is 15.4%). The county’s May 2015 unemployment rate was 5.9%, slightly above the national rate of 5.5%.
LOW LONG-TERM LIABILITIES
The county’s long-term liability profile is a key credit strength. The majority of the county’s debt was issued for the renovation of the county’s four high schools, and was approved by voters in late 2007. Debt metrics are low: debt per capita is only $1,579 and debt burden is 2.2%.
The county has a $20 million note due in July 2017. In fiscal 2016 the county plans to pay down a portion of the note and the balance will subsequently be bonded. There are no additional near-term borrowing plans. The county houses its overflow inmate population at a neighboring regional jail. Should the county opt to expand its own jail facilities, debt issuance would occur, but debt levels are expected to remain manageable.
Employees participate in the Virginia Retirement System, an agent and cost-sharing multiple-employer pension plan. As of June 30, 2014 the county’s share of the plan was well funded at 85%. The unfunded actuarial accrued liability was a modest $8.4 million or 0.2% of the tax base. The actuarially required pension contribution was a low 2% of government spending.
Other OPEB annual costs are also low. The unfunded actuarial accrued liability at June 30, 2013 was $7.6 million. Total carrying costs (debt service, pension, and OPEB) were a manageable 18% of government spending and are expected to rise slightly with note amortization.
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, Zillow Group, State of Virginia.
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
Patricia McGuigan, +1-212-908-0675
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Parker Montgomery, +1-212-908-0833
Jessalynn Moro, +1-212-908-0608
Sandro Scenga, +1-212-908-0278