Fitch Affirms Columbia County, GA Water & Sewer Revs at 'AAA'; Outlook Stable
--\$3.2 million water and sewerage system revenue bonds, series 2000 (senior lien);
--\$69.8 million water and sewerage system revenue bonds, series 2010 and 2011 (subordinate lien).
The Rating Outlook is Stable.
The senior lien bonds are secured by a pledge of and first lien on the net revenues of the county's combined water and sewer system (the system). The series 2010 and 2011 bonds are secured by a pledge of and lien on the net revenues of the system, subordinate to the senior lien revenue bonds. The senior lien is closed.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: Net revenues have consistently provided very strong total debt service coverage (DSC) and excellent liquidity.
MODERATE CAPITAL PLAN, LOW DEBT: The utility plans to entirely cash-fund the current moderate five-year capital improvement plan (CIP). Debt is low, affording considerable debt-issuance capacity if required.
COMPETITIVE USER CHARGES: The average combined residential monthly water and sewer charges comprise only 1.1% of median household income (MHI), well below Fitch's affordability criteria.
AMPLE CAPACITY: The system's water supply and wastewater treatment capacity are abundant, providing significant flexibility to meet longer-term demand.
SOLID ECONOMIC BASE: County MHI significantly exceeds that of the state and the nation, and unemployment continues to decline as economic development expands.
RATING STABILITY EXPECTED: The ratings are sensitive to shifts in the system's financial, debt and operating profiles. The Stable Outlook reflects Fitch's expectation that such changes are unlikely over at least the near to intermediate term.
The system is coterminous with Columbia County (general obligation bonds rated 'AAA' by Fitch), located directly northwest of Augusta along the Georgia-South Carolina border. The county is mostly rural but includes several fairly affluent residential suburbs of Augusta.
CONSISTENTLY SOLID FINANCIAL RESULTS
Financial performance has stayed strong and consistent with prior expectations. Fiscal 2014 net revenues yielded senior lien DSC of 4.2x and total DSC - including second lien annual debt service (ADS) - of 2.6x. Fiscal 2014 unrestricted cash and investments totaled \$43 million, equal to an exceptional 1,167 days cash on hand. Annual 3% rate increases that track inflation should support continued strong liquidity and DSC into the future.
MANAGEABLE, INTERNALLY FUNDED CIP
The utility projects to fund its \$25 million fiscal 2015-2019 CIP with recurring revenues. The CIP will primarily fund projects related to the renewal and replacement of the system's relatively current infrastructure and for the extension of water and sewer lines consistent with population growth. The CIP's primary highlight is \$8.5 million (or 35% of the total spending) to double treatment capacity at the Little River wastewater treatment plant. Additionally, management has set aside funds for a potential upgrade of its effluent quality processes to comply with pending total maximum daily load (TMDL) limits imposed by the state for all utilities that discharge into the Savannah River. Management indicated that it may issue some additional debt in order to fund projects supplemental to the current CIP, but the timing and amount of this debt is still unknown.
Fiscal 2014 debt levels were mostly positive. Debt per customer was low at \$1,099 (the 'AAA' median is \$1,165), the total debt represented a low 4.1x of available revenues, and the amortization schedule is rapid with 95% of the existing debt retiring in 20 years. However, carrying costs were somewhat high for the 'AAA' medians, with debt representing 38% of net plant (the 'AAA' median is 24%) and ADS representing a somewhat high 25% of gross revenues relative to the 'AAA' median of 18%. On balance, the system's strong financial profile and objectively low combined debt metrics, supported by anticipated annual rate increases, lend the utility a substantial degree of additional debt-issuance capacity, if needed.
CONSISTENT AND AFFORDABLE RATES
Rates have been increased prudently on an average annual basis of 3% since 1991 and have been approved by the county commission to increase by 3% annually over the next two years. Fiscal 2014 combined monthly water and sewer bills averaged \$62 (assuming water and sewer usage of 10,000 and 6,000 gallons per month, respectively). This amount remains very affordable as it represents about 1.1% of MHI, below Fitch's affordability threshold of 2% for combined rates. This, and the fact that rates are competitive relative to the area, lends the utility ample flexibility to continue annual increases as it has done historically.
SOLID OPERATING AND CAPACITY PROFILE
The system maintains ample water supply and wastewater treatment capacity. The county continues to await direction from the state regarding the implementation of the TMDL criteria for the Savannah River. Capital costs associated with potential system upgrades are still unknown, but management indicates that system effluent quality already falls well below state standards and potential treatment modifications should not impose an unmanageable burden. Fitch will continue to monitor what impact, if any, the new criteria has on the county's financial and debt profiles.
STABLE POPULATION AND ECONOMIC GROWTH
The county experienced a nearly 40% population growth between 1990 and 2010. The county benefits from its close proximity to Augusta coupled with its affordable cost of living relative to other areas in the state of Georgia. Military, health care, and manufacturing serve as the major economic sectors with some representation from leisure activities. A strong school district, the expansion of the commercial and retail sectors, and the presence of Fort Gordon, a military base partly located in the county, adds stability and diversity to the community.
Management reports that roughly two-thirds of the working population commute outside the county for work, but in-county consumption is on the rise as more amenities become available. The county unemployment rate of 5.5% in November of 2014 marked an improvement from two years prior. The rate continues to fall below those of the Augusta-Richmond metropolitan statistical area (6.6%), the state (6.6%), and the national 5.7% rates.