Fitch Affirms Cabarrus County, NC's GOs at 'AA+'; Outlook Stable
The Rating Outlook is Stable.
Fitch affirms the following:
--$72.8 million in outstanding GOs series 2004 and 2013 at 'AA+';
--$321.2 million in outstanding certificates of participation (COPs) series 2007, 2008A, 2008B, 2008C and 2009, and LOBs, series 2011B, 2011C and 2016 at 'AA'.
The GO bonds are backed by the county's full faith, credit, and unlimited taxing power.
The COPs and LOBs are payable from lease payments subject to annual appropriation by the county and a deed of trust granting owners of COPs and LOBs a lien on various government assets. The bonds are rated one notch below the county's IDR, reflecting the appropriation requirement.
KEY RATING DRIVERS
The 'AA+' IDR reflects the county's expanding economy, low debt burden and strong financial management. The Stable Outlook reflects Fitch's expectation that the county will continue its conservative budget practices, with ongoing expenditure management.
Economic Resource Base
Cabarrus County is located approximately 18 miles northeast of Charlotte in the Piedmont region of North Carolina. The county continues to experience strong population growth, significantly higher than that of the state and nation. The county's economy has traditionally focused on agriculture and textile manufacturing; more recently it has benefited from its proximity to the broad and growing Charlotte economy, which has allowed for expansion into the distribution, biotechnology, entertainment, healthcare and retail sectors.
Revenue Framework: 'aaa' factor assessment
Property taxes comprise over 60% of the county's general fund revenues. The county benefits from high revenue-raising flexibility, given that the current property tax rate is less than half of the statutory limit. Following steep recessionary declines the county has seen recent assessed value growth, through new construction and appreciation, which is yielding revenue growth that Fitch expects to continue.
Expenditure Framework: 'aa' factor assessment
The county maintains solid expenditure flexibility due to moderate carrying costs and strong workforce control. Elevated debt service costs are offset by the absence of retiree benefit funding demands. Fitch expects the natural pace of spending growth to be in-line with, to marginally above, that of revenue growth.
Long-Term Liability Burden: 'aaa' factor assessment
The county's combined debt and pension liability is low in relation to the resource base. The burden is almost entirely in the form of direct county debt.
Operating Performance: 'aaa' factor assessment
The county has exceptionally strong gap-closing capacity and is expected to manage well through economic downturns, retaining strong financial flexibility in the form of revenue and expenditure control and reserve funding. Budget management in recoveries is sound.
STRONG FINANCIAL FUNDAMENTALS: The rating is sensitive to shifts in the county's historically strong financial practices and moderate fixed carrying-cost burden. Continued sound management of rapid growth during the medium term could result in positive rating momentum.
Cabarrus is a tourist hub in the state of North Carolina, serving as home to the Concord Mills Mall and the Charlotte Motor Speedway. The county's economy continues to show diversification with the Carolinas Medical Center and the North Carolina Research Campus making up a growing percentage of the employment base. The healthcare and biotech industries in the county continue to grow.
Property taxes make up a large portion of general fund revenues, approximately two-thirds. The county-levied sales tax is the second largest source. Assessed values (AVs) have recovered following the recession with recent growth over the last two fiscal years. Revenue growth has been above that of national GDP levels and Fitch expects that to continue as the property tax base continues to expand.
Strong historical growth of general fund revenues exceeds CPI and national GDP growth. Fitch expects this growth to continue as new construction progresses.
The county's high independent legal revenue-raising capacity reflects low property tax rates. The fiscal 2016 ad valorem tax rate is $0.70 per $100 of AV, less than half of the statutory cap of $1.50 per $100 of AV. The local and state sales tax rate is 7%, allowing for a small increase to 7.25%.
The county's primary expenditure is education followed by health and social services. Education costs make up just under one-third of general fund expenditures.
The county maintains solid cost control measures, including the ability to institute hiring freezes and control head counts and salaries, which provide it with solid expenditure flexibility.
Fitch expects expenditures to continue to grow at a rate in line with, to marginally above revenue growth, in the absence of policy action.
Over recent years general fund revenues have increased at a moderate pace. Although education costs make up a majority of general fund spending, the lack of collective bargaining and limited demands for service expansion temper growth pressures. Carrying costs associated with debt service, actuarially determined pension payments and OPEB actual contributions are manageable at 19.7% of fiscal 2015 general fund spending, although it is notable that this is entirely attributable to debt service costs.
Long-Term Liability Burden
The county's long-term liability burden, including overall debt and the Fitch-adjusted net pension liability, is low in relation to its resource base. Fiscal 2016 issuances of LOBs have increased the county's outstanding debt by about $87.9 million, to approximately $485 million; however, the long-term liability burden remains low and Fitch expects it to remain so.
County employees participate in the Local Government Employees Retirement System (LGERS) administered by the state. The county's portion of LGERS is fully funded. OPEB liabilities are negligible.
Given the county's superior inherent budget flexibility and low revenue volatility, the available fund balance of approximately $78 million, or about 37% of spending is judged to be well above the reserve safety margin Fitch would look for to make a 'aaa' financial resilience assessment. Through the most recent downturn the county maintained high reserve levels and Fitch expects the county to exercise sound management and maintain high reserves in future downturns.
The county has generated general fund surpluses in four out of the last five years and routinely finishes the fiscal year positive relative to budget. The county fully funds its actuarially calculated pension contribution.
Year-to-date fiscal 2016 results indicate property tax revenues exceeding budgeted projections by approximately $3 million, resulting in an estimated $5 million increase to fund balance. For the 2017 budget the county assumes an increase of just above 3% in taxable assessed value. The total projected general fund budget for fiscal 2017 is approximately $233 million.