Fitch Ratings has affirmed the ratings on the following bonds of
Union County, North Carolina:
--$401.5 million outstanding GO bonds at 'AA+';
--$93.7 million outstanding certificates of participation (COPs)
at 'AA'.
The Rating Outlook is Stable.
SECURITY
GO bonds are general obligations secured by the full faith and
credit and unlimited taxing power of the county.
COPs are secured by lease payments subject to annual
appropriation by the county and by a lien on essential government
assets.
KEY RATING DRIVERS
FAVORABLE ECONOMIC INDICATORS: The county's economy benefits
from the broad employment base of the City of Charlotte. Wealth
levels continue to exceed national averages. Unemployment is
slightly above national averages.
STRONG FINANCIAL PROFILE: The county continues to exhibit solid
reserve levels and controlled expenditure growth in spite of
pressures related to the rapid escalation of the population.
AVERAGE DEBT BURDEN: Overall debt levels remain moderately low
and are expected to decline modestly in the future given the
county's lack of future debt plans. Principal amortization is above
average. The county continues to reduce its above-average exposure
to variable-rate debt.
COPS APPROPRIATION RISK: The 'AA' rating assigned to the COPs
reflects appropriation risk in addition to the level of
essentiality assigned to assets securing bondholders.
CREDIT PROFILE
GROWING ECONOMY
Union County is a rapidly-growing, primarily residential, suburb
of Charlotte. The county's population, estimated at 201,292 in
2010, grew a substantial 62.8% since the 2000 census and is
projected by the North Carolina State Demographics Unit to grow
another 25% this decade. Growth management policies have somewhat
moderated the pace of development since fiscal 2008, although the
county remains attractive due to its proximity to Charlotte. Most
of the county's largest employers and taxpayers are manufacturing
companies. Corporate expansions and developments in the county have
been limited in nature and focused on manufacturing and
construction. The county is the third highest in the state for
agribusiness receipts.
Economic indicators are generally positive, although lingering
effects of the recession remain. Unemployment, at 8.9% in December
2011, is below the state's 9.8% but above the nation's 8.3% and
virtually unchanged from a year ago. Wealth indicators are above
state and national averages.
SOUND FINANCIAL PERFORMANCE
Strong financial management has allowed the county to accumulate
significant reserves with available fund balance above the county's
prudent policy of 16% of spending since at least fiscal 2007. The
county ended fiscal 2011 with an operating surplus (after
transfers) of $2.6 million (1.2% of spending), improving the
unrestricted fund balance (the sum of assigned, unassigned and
committed per GASB 54) to $41.6 million (a healthy 18.8% of
spending). Favorable results were achieved largely through growth
to budget in property and sales taxes. Fitch considers the county's
reserve for state statute, which is primarily comprised of funds
reserved for accounts receivable, a source of additional financial
flexibility totaling $12.5 million (5.7% of spending).
The fiscal 2012 budget is performing well based on six months of
actual results. Sales tax revenues are out-performing budgeted
expectations by 5%, and property tax revenues are up as well. Due
to positive actual-to-budget variances for key revenue sources, the
county projects a small operating surplus (after transfers) of $3
million (1.4% of spending). The county had budgeted to end fiscal
2012 flat without use of fund balance and has similar budget plans
for fiscal 2013.
The county has expressed concern that sales prices may be 15%
below taxable values due to the fact that the last revaluation
occurred right before the housing crisis. The county would have
until 2015 to perform its next revaluation. Fitch notes that
substantial tax base decline would stress financial
flexibility.
MANAGEABLE LIABILITY BURDEN
Overall debt levels are moderately low at $2,460 per capita and
2.3% of market value. Debt service costs are high, consuming 23% of
total spending in fiscal 2011. Amortization of outstanding
principal is above average with 57.9% of principal retired within
ten years. Fitch expects debt levels to decline modestly in the
future as the county has no short-term plans for debt issuance. The
county has not adopted a new capital improvement plan (CIP) since
fiscal 2010. Fitch views the lack of an updated CIP (for the county
and schools) with some concern given the county's significant
population growth and high infrastructure needs.
The county's debt profile exhibits above average risk due to the
high proportion of variable rate debt to total debt, although this
is somewhat mitigated by the county's strong credit quality and
commitment to reducing its variable rate debt exposure. As of March
2012, the county's synthetically-fixed debt accounted for 26% of
outstanding debt obligations, comparing positively to 2007, when
variable rate debt accounted for 43% of GO debt. The current
mark-to-market on five swaps outstanding is negative $18.5
million.
Current funding for pension obligations does not represent a
large cost pressure. In fiscal 2011, the county contributed $3
million (1.4% of spending) to the state-administered Local
Government Employees' Retirement System (LGERS) and the
county-administered Special Separation Allowance (Separation
Allowance). The county's payment to the Separation Allowance
equaled only 77.8% of the annual required contribution (ARC), as
the county had contributed over 100% of the ARC for several years
prior. Fiscal 2012 contributions to LGERS and Separation Allowance
are budgeted to equal 100% of the ARC.
Fitch does not consider the county's OPEB liability to be
exerting financial pressure given the relatively small size of the
OPEB ARC. In fiscal 2011, the county's contribution totaled $4.9
million (2.2% of spending), equal to 104% of the ARC. The county
deposited $2 million of this amount to a trust to pre-fund its OPEB
liability in fiscal 2011 and has budgeted to do so again in fiscal
2012.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer,
and therefore, Fitch has been compensated for the provision of the
ratings.
In addition to the sources of information identified in the Tax
Supported Rating Criteria, this action was informed by information
from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, and
Zillow.com.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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