Fitch Rates Spartanburg County, SC’s $16 million GOs at ‘AA’; Outlook Revised to Positive
By Business Wire News
By Business Wire News
Fitch Ratings has assigned an ‘AA’ rating to the following Spartanburg County, SC (the county) general obligation (GO) bonds:
–$16,000,000 GO refunding bonds series 2015.
The bonds are expected to sell on or about Dec. 15 via competition. Bond proceeds will be used to refund various maturities of the series 2003, 2005, 2007 and 2009 GO bonds for net interest savings.
In addition, Fitch has affirmed the rating on the following bonds at ‘AA’:
–$10.1 million outstanding GO bonds.
The Rating Outlook is revised to Positive from Stable.
The bonds are general obligations of the county to which the county’s full faith and credit and unlimited taxing power are irrevocably pledged.
KEY RATING DRIVERS
OUTLOOK REFLECTS FINANCES, ECONOMY: The revision of the Outlook to Positive reflects the county’s very strong financial performance and ample reserves resulting from improved budgeting practices as well as an expanding economy. The Positive Outlook is further supported by the strengthening manufacturing-based economy with continued diversification.
LOW DEBT AND LONG-TERM LIABILITIES: Debt ratios and carrying costs remain very low and are supported by rapid amortization. Expected near-term debt issuance is minimal. Pension and other post-employment benefit (OPEB) contributions are affordable.
MANUFACTURING CONCENTRATED ECONOMY: BMW’s expanding manufacturing plant contributes further to the concentrated auto industry. Partially offsetting this risk is the significant recent and ongoing private investment in a diverse group of manufacturers outside the auto industry.
POSITIVE OPERATIONS: An upgrade is likely if the county maintains its positive operations, adding to its financial cushion.
DIVERSE ECONOMY: An unexpected and material reversal of the diversification of the economy could put negative pressure on the rating.
The county is part of the Greenville-Spartanburg metropolitan statistical area (MSA). The county has seen strong population growth in recent years. The estimated 2014 population of 293,542 continues to grow at a healthy pace due to its location along the I-85 corridor between Charlotte and Atlanta.
POSITIVE FINANCIAL OPERATIONS; SPENDING PRESSURES MANAGEABLE
The county restored balanced operations through millage rate increases, public safety expenditure reductions, and healthcare cost reductions following several years of fund balance draws during the recession.
Property taxes account for 70% of general fund sources. South Carolina’s Act 388 (adopted in 2006) limits annual growth in the operating millage based on growth in the population and the consumer price index (CPI). The operating millage was unchanged in fiscal 2015 and in fiscal 2016 after a modest increase (2.5%) in fiscal 2014. Act 388 allows municipalities to increase the millage rate as noted above or to ‘bank’ unused millage capacity for three years. Fitch estimates the county could choose to levy close to 5.6 mills ($5.5 million) in additional property taxes for fiscal 2017 (6% of budgeted fiscal 2016 general fund revenues). The county’s tax rates are average compared to in-state peers.
In fiscal 2014, an increase in the millage and assessed values along with a reduction in spending resulted in a $3.8 million surplus. The resulting unrestricted fund balance of $13.7 million equaled about 16.8% of spending. Unaudited fiscal 2015 financials show a $6.6 million surplus resulting in $20.3 million in unrestricted fund balance or 24.6% or spending. Since fiscal 2011, the county has maintained reserves above its formal unrestricted fund balance policy of 10-15% of revenues. Management indicates they are currently considering increasing the reserve policy.
STABLE FISCAL 2016 BUDGET PICTURE
The fiscal 2016 budget equals $89.3 million; a 5.3% increase over the previous year’s budget primarily due to hiring eight full-time equivalents and a cost-of-living-adjustment (COLA) of 3.75%. The budget is a slight increase over fiscal 2015 unaudited results and is balanced without the use of reserves. The county expects to finish the year at or better than budget, which Fitch considers reasonable given the history of conservative budgeting.
CONCENTRATED, BUT GROWING AND DIVERSIFYING ECONOMY
County employment and labor force gains since the end of the recession have exceeded those of both the state and the nation. Total employment in the county from 2011 to 2014 increased an average of 2.1% annually, ahead of both the state (1.8%) and nation (1.3%). As of September 2015, the county’s unemployment rate was 5.5%, down from 6.7% the prior year; slightly better than the state’s rate of 5.7%, but behind the nation’s rate of 4.8%.
The county plays an integral role in the region’s growing manufacturing economy. The county’s employment base has historically centered on textile, knitting, and apparel manufacturing and more recently shifted to automobile production and related industries. Manufacturing companies and trade and utilities companies now dominate the county’s top taxpayers and employers. BMW is the largest employer in the county with over 8,000 workers at their plant, representing about 6% of the workforce. In 2014 BMW announced a $1 billion expansion that will further increase employment. BMW’s presence has attracted suppliers and complementary industries to the area, with nearly half of BMW’s South Carolina suppliers located in the county.
The South Carolina Inland Port (the port) opened in October of 2013 and facilitates railway shipping between the Port of Charleston and companies located throughout the Southeast. Fitch expects the port to continue to support economic development in the county.
According to the Spartanburg Chamber of Commerce, over $2.68 billion in capital investment was announced within the county since 2013, expected to create approximately 4,143 new jobs upon completion. The announcements include non-automobile manufacturers like Toray, a Boeing supplier, and Kobelco, a heavy construction equipment manufacturer, which have both broken ground and are providing a measure of diversity to industry concentration.
LOW DEBT, AMORTIZED RAPIDLY
Overall debt levels are very low at $841 per capita and 1.1% of market value for fiscal 2014. These levels are not expected to increase due to minimal future debt plans and the rapid amortization of existing debt at 72.5% of outstanding principal retired in 10 years. The county’s capital improvement plan (CIP) totals $83.3 million for fiscals 2016 to 2020 and calls for a modest debt issuance of $1.5 million to fund a series of building renovations including roofs. Total debt service for fiscal 2014 was $8.14 million (an affordable 5.1% of governmental spending).
The county is a member of the South Carolina Retirement System (SCRS) and the South Carolina Police Officers’ Retirement System (PORS). Current pension costs are affordable with fiscal 2014 contributions of $3.76 million to SCRS and $3.06 million to PORS, totaling 5.1% of governmental spending. However, the state pension plans’ poor funding may pressure future contributions but should remain affordable.
The county’s OPEB plan is funded on a pay-as-you-go basis. For fiscal 2014, the county contributed $1.97 million, equal to 1.2% of governmental spending. Funding of the entire ARC would equal 3.7% of spending. The OPEB liability does not currently pressure county finances and future liability exposure should decrease due to recent changes to the plan including the county’s transition to the state managed Employee Insurance Program (EIP). Total carrying costs including debt service, pension ARC and OPEB contributions total a low 10.6% of government spending.
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 the 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.
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New York, NY 10004
Sandro Scenga, +1-212-908-0278