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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