Fitch Rates Prince William County, VA's Rev Bonds 'AA '; Outlook Stable
--\\$28.8 million facilities revenue and refunding bonds series 2016A (county facilities projects) issued by the industrial development authority.
Pursuant to Fitch policy, new rating assignments during the exposure draft period for U.S. State and Local Government Criteria will be analyzed under both the existing and proposed criteria approaches. If the results of the two approaches differ, Fitch assigns a rating based on the proposed criteria, because it more accurately reflects Fitch's current view. The rating assigned in this Rating Action Commentary (RAC) is based on the proposed criteria approach. Under this approach, Fitch no longer makes rating distinctions based on its assessment of the essentiality to the obligor of the assets being financed. With few exceptions, appropriation-backed bonds will generally be rated one notch below the obligor's unlimited tax general obligation (ULTGO) rating, reflecting the slightly higher degree of optionality associated with lease/appropriation payments compared to ULTGO bond payments. None of the exceptions apply to the rating assigned in this RAC.
Bond proceeds will be used to fund the improvement of certain property to be used by the county as a central district police station and to refund certain outstanding maturities of the county's refunding lease participation certificates, series 2005 for debt service savings. The bonds will be priced via competitive sale on March 1.
In addition, Fitch has affirmed the following ratings:
--\\$323.8 million special obligation bonds, series 2011, 2012, 2013, 2014 and 2015 issued by the VPSA at 'AAA' and
--\\$231.8 million county GO bonds at 'AAA' issued by the county.
The Rating Outlook is Stable.
The revenue bonds are limited obligations of the IDA as conduit issuer and are payable from installment payments from the county to the trustee. Payments are equal to debt service and subject to annual appropriation by the county board.
The GO bonds are general obligations of the county, secured by its full faith and credit pledge and unlimited taxing power
The Virginia Public School Authority bonds are payable from debt service payments on underlying GO bonds made by the county on behalf of the school, held by the authority and pledged to the payment of the bonds.
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: Reserve levels and financial flexibility remain sound, supported by prudent fiscal policies, multi-year planning and ample revenue flexibility.
DYNAMIC ECONOMY: The county's strong and diverse economic base benefits from its location near Washington, D.C., with high wealth levels, a highly educated labor pool and low unemployment. Recent tax base growth has been robust.
FAVORABLE DEBT PROFILE: Prince William County continues to adhere to good debt management guidelines, which has resulted in moderately low overall debt and rapid amortization.
STRONG FINANCIAL MANAGEMENT: Financial flexibility continues to be ample with healthy fund balance levels as a result of conservative budgeting practices. Although not expected, weakening of the county's financial flexibility would result in a rating change.
The county is located in northern Virginia, approximately 25 miles southwest of Washington, D.C. It encompasses an area of 348 square miles, of which 18.8% is federally owned land. The county's population continues to grow at a rapid pace, reaching an estimated 446,094 in 2014, an 11% increase since 2000.
ADEQUATE RESERVE LEVELS
Conservative budgetary management has enabled the county to maintain healthy reserves and liquidity. Fiscal 2015 ended with a net operating surplus after transfers of roughly \\$27.2 million (2.7% of spending), despite the \\$11.9 million budgeted appropriation. The unrestricted general fund balance totaled \\$161.6 million or a healthy 15.9% of spending. Despite the intentional use of committed reserves in recent years for capital spending (about 1.5% of spending), management plans to continue to meet its 7.5% unassigned general fund reserve fund balance policy. In addition to the 7.5% reserve, the county maintains a revenue stabilization reserve within the committed fund balance. As of fiscal year-end 2015 the balance was equal to 3.6% of general fund revenues which is well above the prescribed minimum balance. The county board will be considering increasing the policy to 2% from 1% during the fiscal 2017 budget process.
SOLID REVENUE-RAISING FLEXIBILITY
The county is not subject to any limitation on its property tax rate or levy. Typical of Virginia counties, property taxes produced approximately 68% of fiscal 2015 general fund revenue. The county has reduced the tax rate over the past three fiscal years reflecting consistent growth in assessed values. Tax rates are competitive compared with similarly sized neighboring communities.
The fiscal 2016 adopted budget reflects a 3.74% spending increase over the prior year's budget. It includes a 2.6 cent tax rate decline to \\$1.122 per \\$100 of AV and a \\$3.1 million fund balance appropriation. The budget increase funds a 4.2% increase to schools, additional public safety positions and equipment and a 2% market adjustment pay raise for most employees. According to year-to-date operating performance, revenues are \\$5 million over budget mostly due to positive variances in personal property taxes and spending is about \\$5 million under budget as well due to conservative budgeting for vacancies.
STRONG LOCAL ECONOMY ANCHORED BY FEDERAL GOVERNMENT PRESENCE
The county benefits from its favorable location on the outskirts of the Washington, D.C. metropolitan region, its relative affordability, and a well-educated workforce. Its stable economic base, rooted in government and military employment, has expanded to encompass the targeted industries of life sciences, information technology and federal government agencies and contractors. Given the available land and existing utility infrastructure, approximately 2.3 million square feet of data centers have been constructed within the county since 2000. A \\$100 million center was completed during 2015 which added 15 jobs. A second \\$500 million facility is projected to be completed by June of 2016 and is expected to add 30 new jobs.
The presence of the Quantico Marine Base along with the addition of the FBI Northern VA satellite office helps to attract contractors and federal agencies. The county remains exposed to changes in defense spending, although since 2005 \\$239 million in investment and 2,474 net new jobs have been added in this sector. The federal government currently represents 6% of the resident employment base.
The county has experienced rapid population growth since the 1970s, with increases during the past decade outpacing those of the commonwealth by over three times. Employment figures remain strong with unemployment at a low 3.5% as of December 2015, below both the state and national average.
AFFORDABLE DEBT LEVELS
Overall debt levels are expected to remain moderately low given the county's comprehensive planning and debt affordability guidelines. Overall debt equals \\$2,229 per capita and 1.6% of market value, well below the county's policy of 3% on overall debt. Amortization is above average and annual debt service costs are affordable at 10% of total fiscal 2015 governmental spending. The county's approximately \\$1.3 billion fiscal year 2016-2021 capital improvement plan is primarily debt financed (\\$714 million) and comprises mostly education related projects at \\$919 million. Paygo spending accounts for mainly a quarter of funding.
MODEST PENSION AND OPEB COSTS
Long-term liabilities related to employment benefits do not pressure operations. As of June 2015, the county's portion of the state's (VRS) pension program was funded at 83%. The unfunded actuarial accrued liability totals approximately \\$186 million or less than a half of a percentage of market value.
The county also maintains a small supplemental defined benefit retirement plan for police officers and uniformed fire and rescue personnel and a volunteer fire and rescue personnel length of service award program (LOSAP). As of July 2015, the supplemental plan's actuarially determined funded ratio was 89.8% and the unfunded liability was just \\$3.9 million. As of July 2014, the LOSAP was 88% funded and the unfunded liability was a small \\$1.8 million. The 2015 required contribution for all plans accounted for a modest 2.7% of government spending. Notably, the county typically funds its ARC for other post-employment benefit (OPEB) which accounted for 0.1% of spending in fiscal 2015. Carrying costs for debt service, pension ARC and OPEB actual, including prefunding amounts were a modest 13% of governmental spending in fiscal 2015.