OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following Maryland-National Capital Park and Planning Commission (MNCPPC) bonds:

--$8 million park acquisition and development project bonds, series MC-2017A.

In addition, Fitch assigns an Issuer Default Rating (IDR) for MNCPPC of 'AAA'.

Proceeds of the MC-2017A bonds will be used to fund park acquisition and development projects in Montgomery County (the county), Maryland. The bonds are scheduled for sale on April 20.

In addition, Fitch affirms the following ratings:

--$50.2 million MNCPPC Montgomery County Park acquisition and development GO Bonds, various series at 'AAA'.

The Rating Outlook is Stable.

Bond proceeds will be used to acquire land, develop new and improve existing parks and recreational facilities in Montgomery County, MD. The bonds are scheduled to sell competitively April 20, 2017.

SECURITY

The bonds are general obligations of the MNCPCC and the county, secured by both a mandatory tax levy on the county's portion of the park and planning district as well as the county's unlimited taxing authority on all property within its borders as the guarantor of the bonds.

KEY RATING DRIVERS

The 'AAA' rating for this obligation reflects the creditworthiness of both MNCPPC and the county (IDR of 'AAA'). Given the double-barrel pledge, the rating on the commission bonds would reflect the higher of the two ratings should they diverge. MNCPPC's 'AAA' IDR reflects the commission's strong revenue framework, low long-term liability burden, and ample gap-closing capacity.

The MNCPCC is a bi-county agency empowered by the state of Maryland in 1927 to acquire, develop, maintain and administer a regional system of parks within Montgomery and Prince George's Counties (IDR of 'AAA'), and to provide land-use planning for the physical development of each county. In addition, the Commission has the responsibility for the public recreation program in Prince George's County.

The MNCPCC also prepares and periodically reviews a general plan for the entire district including master plans for transportation, parks and open spaces and public facilities and also studies and makes recommendations with respect to all requested zoning applications. The MNCPCC employs over 2,000 year-round employees and over 4,000 seasonal workers. Two regional offices are maintained, one in each county and the MNCPCC holds regular monthly meetings.

Each county appoints a five-member planning board member to the MNCPCC to facilitate, review and administer matters affecting their respective counties. The MNCPCC's major source of funding is property taxes levied on an individual county basis. Separate accounts for each county are maintained within the MNCPCC's general fund for transparency purposes. The MNCPCC issues debt separately for each county, not for the MNCPCC as a whole.

Economic Resource Base

Montgomery County borders Washington D. C. and northern Virginia. As such, the county's employment base has a significant presence of the U. S. government and contractors within the information, intelligence, biotechnology, and high-tech manufacturing industries. While employment growth has slowed it has still continued to increase, and unemployment remains low. The county remains one of the wealthiest in the country.

Federal government employment is led by the U. S. Department of Health and Human Services (over 30,000 employees) and U. S. Department of Defense (DOD; over 13,000 employees). Concerns with respect to budget cuts at the DOD are somewhat tempered by the nature of defense operations within the county, which center on the Walter Reed National Military Medical Center and the U. S. Army Research Laboratory.

Revenue Framework: 'aaa' factor assessment

MNCPCC's revenues have been rising at a pace above both the rates of inflation and U. S. GDP growth and Fitch expects this trend to continue. The commission enjoys strong revenue flexibility given the legal ability to increase property taxes without limitation with council authorization.

Expenditure Framework: 'aa' factor assessment

Given the commission's limited mission and ability to make timely programmatic changes, Fitch expects spending to grow in line with revenues.

Long-Term Liability Burden: 'aaa' factor assessment

The commission's combined debt and unfunded pension liability burden is low. Additional debt plans are affordable and flexible. Given steady growth in personal income, additional debt plans at the county level is not expected to notably impact the commission's liability burden.

Operating Performance: 'aaa' factor assessment

The commission's superior budget flexibility and ample total governmental fund balance position it to manage comfortably through economic downturns without diminishing its overall financial flexibility.

RATING SENSITIVITIES

Shifts in Fundamentals: The rating is sensitive to shifts in currently sound credit profiles such as sound operations, financial management and reserves of both the county and commission, given the double-barrel pledge.

CREDIT PROFILE

Revenue Framework

Property taxes are the largest revenue source for the commission at 74% of total governmental fund revenues followed by intergovernmental revenues which reflects revenue support from the state and Montgomery County. Home values are approximately 90% of the pre-recession peak in fiscal 2006 according to Zillow but continue to experience steady gains; the fiscal 2018 proposed budget includes a fifth consecutive taxable assessed value increase based on the rolling three-year reassessment cycle and new construction.

Historical growth of general fund revenues exceeds U. S. CPI and GDP. Given projected development trends revenue growth prospects are sound absent any tax rate changes.

The property tax levy and rate are not subject to a cap. However, state law requires the county to assess a levy of at least $0.036 per $100 of assessed value (AV) on all real property and at least $0.09 per $100 AV of all personal property so long as the commission exists. The proceeds of this tax are pledged to payment of debt service on all MNCPCC bonds issued on the county's behalf, with any amount not needed for debt service available to the MNCPCC for its authorized purposes, including operations. The county has no claim to revenues generated by this tax. Maximum annual debt service (MADS) on the bonds consumes about 10% of estimated 2017 mandatory tax proceeds. Given the modest amount of debt service, proceeds from the levy are mostly used for operations.

Expenditure Framework

Given the commission's focused mandate to develop and operate parks and recreational facilities throughout the county, the largest expenditure item is park operations and maintenance at 55% and capital outlay at 22% of total governmental spending.

Fitch expects the natural pace of spending growth to remain below, to in line with the commission's strong revenue growth. Low carrying costs and broad flexibility to manage capital spending allows the commission solid leeway to adjust spending throughout economic cycles.

Carrying costs associated with debt service, actuarially determined pension payments and other post-employment benefits (OPEB) actual contributions totaled about 17% of fiscal 2016 total governmental spending; pension costs accounted for about half of the total.

Most of the commission's employees are unionized. Council does have control over head count although arbitration is binding; however, contracts are typically three years and strikes are prohibited.

Long-Term Liability Burden

Overall net debt plus the commission's unfunded pension liability equals a low 7% of personal income. The commission will repay 60% of outstanding principal within 10 years, leaving adequate capacity to fund future borrowing needs. The fiscal 2017-2022 capital plan totals approximately $185 billion. The plan is funded with moneys from Montgomery County (38%) and debt issuance (22%) with the balance of funding mostly from grants. Given the modest amount of future debt plans, the liability burden is not expected to materially increase.

The commission provides pension benefits for all employees through the Maryland-National Capital Park and Planning Commission Employees' Retirement System defined benefit plan, and annually contributes 100% of the actuarially required contribution. As of July 1, 2016, the plan was funded at 84%. Fitch estimates the funded ratios at approximately 82%, using Fitch's more conservative 7% discount rate compared to the commission's recently reduced rate of 7.25%. The aggregate adjusted net pension liability (representing Montgomery County employees only) totaled $80 million or a very low 0.2% of personal income.

The commission also provides OPEB benefits for its retirees. As of the 2016 valuation the unfunded liability is about $106 million (representing only Montgomery County employees) or less than 1% of personal income and the plan is 16% funded.

Operating Performance

Fitch assesses the commission's inherent budget flexibility as superior given the strong legal ability to increase revenue and reduce expenditures. In response to a weak revenue growth environment during the last recession, the commission reduced capital spending. The unrestricted fund balance at fiscal year-end 2016 was $34.3 million or 20.4% of governmental fund spending. The commission remains in compliance with its reserve policy of 3% of general fund expenditures.

Based on historical results, Fitch would expect a moderate economic downturn to result in a modest decline in revenues in the first year of a downturn, followed by a prompt rebound. The commission's financial position is expected to remain solid throughout the economic cycle with the implementation of operational changes similar to those it instituted during the last recession.

The fiscal 2017 budget is approximately a 3% increase over fiscal 2016. The budget includes a reduction in the tax rate enabled by AV growth. The budget increase funds crucial capital projects and a COLA for employees. Year-to-date operations are positive relative to budget. Although the budget included about a $6 million fund balance appropriation, due to conservation budgeting of expenditures, management is currently projecting break-even results.