Fitch Rates Cobb-Marietta Coliseum & Exhibit Hall Auth (GA) Revs 'AAA'; Outlook Stable
--\\$372,550,000 revenue bonds, series 2015 (Cobb County Coliseum Project) (Federally Taxable).
The bonds will be sold via competition on or about Aug. 25. Proceeds of the bonds will be used to finance a portion of the cost of the acquisition, construction and equipping of a multi-use sports, recreation and public entertainment stadium. The stadium will serve as the home of Major League Baseball's Atlanta Braves franchise (the Braves).
In addition, Fitch affirms the 'AAA' rating on the following Cobb County, Georgia (the county) general obligation (GO) bonds:
--GO park & recreation refunding bonds, series 2005;
--GO park bonds, series 2007.
The Rating Outlook is Stable.
The bonds are a limited obligation of the authority, payable from contract payments to be made by the county to the authority under the terms of an intergovernmental agreement. In the intergovernmental agreement the county has agreed to make contract payments equal to debt service on the bonds not less than two business days prior to any debt service payment date, to the extent funds are not otherwise lawfully available for such purpose. The obligation of the county to make payments under the intergovernmental agreement is absolute and unconditional and will not expire so long as any of the bonds remain outstanding and unpaid, and shall constitute a general obligation of the county backed by its full faith and credit and unlimited taxing power.
KEY RATING DRIVERS
COBB COUNTY SUPPORT: The rating on the bonds is linked to the county's general creditworthiness and GO rating, based on its obligation under the intergovernmental agreement to make contract payments equal to debt service, which constitutes a general obligation of the county backed by its full faith and unlimited ad valorem taxing power.
DEBT REMAINS LOW: The current offering more than doubles the county's overall debt burden but key debt metrics and carrying costs remain very affordable and are expected to remain stable in the intermediate term. Importantly, voters reauthorized the collection of a special purpose local option sales tax (SPLOST) for a six-year period commencing 2016 affording the county resources to invest in various capital needs on a pay-as-you-go basis.
STRONG FINANCIAL PROFILE: Financial management practices are sound, evidenced in generally stable financial performance over an extended period and healthy reserves. Budgetary flexibility is viewed as a positive rating factor, principally evidenced through the county's ability to establish tax revenues without restriction or cap, absence of labor-related demands, and affordable fixed charges related to debt and retiree benefits.
STRONG ECONOMY: Fitch views participation in the sizable, diverse, and expanding Atlanta metropolitan statistical area (MSA) favorably. The county exhibits healthy economic diversification, low poverty, and above-average income metrics.
MANAGEABLE PENSION RISK: The low funded status of the county pension plan is a manageable credit pressure. The unfunded liability remains affordable relative to the tax base, and management has implemented numerous changes in recent years aimed at improving the funded ratio over time. The county has taken similar action to reduce its exposure to retiree health costs.
COUNTY CREDIT QUALITY: The rating is sensitive to changes in the county's creditworthiness and GO rating, and Fitch's expectation for continued sound financial management.
Cobb County is part of the Atlanta MSA and located about 20 miles northwest of downtown Atlanta. The county's population continues to grow at a steady pace and is currently estimated at 730,981.
DEBT REMAINS VERY LOW FOLLOWING SALE OF STADIUM BONDS
The intergovernmental agreement authorizes the issuance of revenue bonds not to exceed \\$397 million for the purpose of financing a portion of the cost of a new \\$672 million baseball stadium for the Atlanta Braves. The team will cover the remainder of the construction costs plus \\$400 million to develop an entertainment district containing retail, restaurant, and hotel space around the stadium. The stadium project is under construction and on schedule for final completion by February 2017.
The proposed offering is significant relative to the estimated \\$254 million in debt currently outstanding backed by the county's general creditworthiness. However, the new debt is not expected to have a material adverse impact on the county's key debt metrics, which will remain very low at \\$955 per capita or 0.9% of market value following the sale. Debt metrics are likely to remain stable or decline in the intermediate term. Future borrowing plans are very modest, owing largely to the funding of important capital needs from the proceeds of the voter-approved SPLOST.
FINANCING DOCUMENTS PROVIDE FOR TIMELY PAYMENT BY COUNTY
Through various interlocal and stadium operating agreements annual debt service on the bonds is expected to be paid from a combination of county and non-county sources as follows: \\$6.1 million annually from the Braves in the form of licensing fees, \\$8.7 million from the reallocation of property taxes currently levied by the county to pay debt service on maturing GO bonds, \\$5.2 million from property taxes on commercial property within the Cumberland community improvement district or CID, and \\$2.7 million from hotel taxes collected within the CID.
The bond trustee is required to notify the county of any deficiency in the debt service fund on the 10th and fifth business days preceding each debt service payment date. The county is obligated to make contract payments, which shall constitute a general obligation of the county, to the trustee equal to any deficiency not less than two business days prior to such debt service payment date. Annual debt service on the bonds is estimated at \\$22 million or less than 4% of county governmental fund spending. Fitch believes the county has sufficient reserves and budgetary flexibility to absorb the full debt service charge, if needed, without pressuring its long-term financial position and credit quality.
HISTORY OF SOUND RESERVES
The county's reserve position continues to strengthen with fiscal year 2014 marking the fourth consecutive year of surplus operating results (after transfers) improving the unrestricted fund balance to \\$87.8 million or a high 25.8% of spending. Reserves have typically been maintained above the formal policy that requires a minimum of 9% of total budgeted appropriations. The county budgets an additional 6% reserve for economic and revenue contingency. The county's other major operating fund, the fire district fund, reported a fund balance equal to \\$25.9 million or 36.8% of fund spending in fiscal 2014. There were no material fund deficits across the nonmajor governmental funds. Liquidity is considered adequate with \\$257.3 million in cash and investments reported across the primary government (governmental activities) - equal to roughly four months of spending or 1.2x total liabilities.
COMMITMENT TO LOW TAXES BALANCED AGAINST FINANCIAL STABILITY
Property taxes fund approximately 60% of the county's general fund budget. At its current level the county's tax rate is very competitive with the city of Atlanta and peer counties within the Atlanta MSA. The county's ability to increase the property tax rate or levy is not legally constrained, representing an important management tool to address future budgetary challenges. The adopted fiscal 2015 budget lowers the general fund property tax rate by 0.2 mills for the third consecutive year in an effort to 'roll back' the 0.9 mill or 13% increase enacted in fiscal 2011. The fiscal 2011 tax rate increase was adopted to help rebuild reserves that had fallen to \\$34.4 million or 10.3% of spending in fiscal 2010, the lowest mark (as a percentage of spending) dating back 15 years.
STABLE OPERATIONS FORECAST
The county annually updates a detailed five-year financial forecast. The current forecast is structurally balanced, and increases the total general fund balance position by \\$14.9 million through fiscal 2020. The forecast assumes a stable tax rate and a reasonable 1.5% average annual increase in revenue. Although management has no immediate plans to spend down fund balance, it continues to evaluate reserve use for one-time purposes only.
The amended fiscal 2015 budget is \\$14.9 million or 4.1% higher than the final fiscal 2014 budget. Property tax collections are projected to increase \\$18.4 million on the year despite the aforementioned millage rate reduction due to growth in the tax digest (or assessed value) of 3.2%. The current year increase in the tax digest follows a 3.6% gain in fiscal 2014 and four consecutive years of relatively mild decline (10.6% from fiscal 2010-2013) relative to the region. The July median home value in Cobb County as reported by Zillow Group was up 5.2% on the year. The amended budget appropriates \\$23.3 million in reserves primarily to fund various vehicle, technology, and capital investments. The budget also funds merit-based salary increases plus 58 new and 20 restored full-time positions. Management expects favorable year-end results relative to the budget; a modest surplus is forecast reflecting year-to-date revenue and expenditure performance, and timing fluctuations associated with the expenditure of funds for capital.
SPLOST RE-AUTHORIZED THROUGH 2021
In November 2014, county voters approved the extension of the 1% SPLOST through Dec. 31, 2021. The SPLOST is expected to generate \\$750 million in revenue to be shared between the county and its six incorporated municipalities. The county share of proceeds is dedicated to funding projects for transportation (\\$287 million), public services including parks, libraries, and senior services (\\$102 million), and public safety (\\$88 million), among other areas. Voter approval for the SPLOST has been mixed historically. Fitch views the recent extension as a positive rating factor in that it enables the county to make important investments in the community without taking on additional debt.
STRONG ECONOMIC POSITION
Cobb County is situated within the core of the Atlanta MSA, the ninth largest economy in the U.S. as measured by non-farm employment (2.58 million) and the 10th largest by gross metro product (\\$338 billion). The economy features significant industry diversity and expansion prospects are strong fueled by dynamic population growth. IHS, Inc. projects population growth in the Atlanta MSA to average 1.5% per year through 2020 compared to a national rate of 0.8%.
Cobb County accounts for roughly 15% of total employment within the MSA and it is home to the headquarters of four Fortune 500 companies including The Home Depot, Coca-Cola Enterprises, Genuine Parts (NAPA) and First Data. In Cobb County, unemployment has historically tracked close to the U.S. standard, while outperforming the Georgia average. The county's educational attainment profile is impressive, with 14.7% of residents holding an advanced degree (137% of the national standard). Poverty rates are low and various income metrics (per capita and household) register 10%-30% above the comparable MSA, state, and national norms.
PENSION FUNDING LOW BUT NOT A MAJOR CONCERN
Funding for the county's pension plan remains low; the reported funded ratio was 53.3% as of the Jan. 1, 2014 valuation. Fitch's adjusted funded ratio (lowering the 7.9% rate of return assumption to 7%) results in a funded position estimated at 48.5%. The adjusted unfunded actuarial accrued liability (UAAL) approximates \\$493 million, equivalent to 0.6% of market value. Since 2008, the county has taken numerous measures aimed at improving the funded ratio over the longer term, most notably increasing employee contributions and closing the plan to new hires after Dec. 31, 2009. The county has over-funded the actuarial required contribution (ARC) the last three years after a period of underfunding from fiscal 2009-2011.
The county continues to pre-fund its other post-employment liability (OPEB) liability, contributing \\$15.3 million or 120% of the OPEB ARC in fiscal 2014. An OPEB trust established in 2008 reported an actuarial value of assets of \\$84.7 million as of Jan. 1, 2014 resulting in a 42.3% funded ratio. In conjunction with the establishment of the trust, the county reduced benefits for some existing employees and all new employees in order to reduce the long-term liability.