OREANDA-NEWS. Fitch Ratings has assigned a rating of 'AA-' to the following general obligation (GO) bonds to be issued by DeKalb County, GA:

--$143,740,000 special transportation, parks and greenspace and libraries tax district GO refunding bonds, series 2016.

The bonds will be sold via negotiation the week of March 21. Proceeds will be used to refund the county's outstanding special transportation, parks and greenspace and libraries tax district GO bonds, series 2006 for an estimated net present value savings of $25.04 million or 15.3% of refunded bonds.

In addition, Fitch affirms the 'AA-' rating on the county's general obligation (GO) refunding bonds, series 2013 and the DeKalb County Public Safety and Judicial Facilities Authority's (PSJFA) revenue refunding bonds, series 2015.

The Rating Outlook is Stable.

SECURITY

The bonds are backed by the levy of an ad valorem tax of the county without limitation as to rate or amount on all taxable property within the special transportation, parks and greenspace and libraries tax district. The special tax district consists of the geographical boundaries of the unincorporated portion of the county as such unincorporated and incorporated areas existed as of Aug. 30, 2005.

The county's GO bonds are a general obligation of the county backed by the levy of ad valorem taxes, without limitation as to rate or amount.

The PSFJA revenue bonds are a limited obligation of the authority payable from installment payments made by the county equal to debt service on the bonds. The county's obligation to make installment payments shall constitute a GO of the county backed by the levy of ad valorem taxes, without limitation as to rate or amount.

KEY RATING DRIVERS

EXPANSIVE TAX BASE: The unlimited property tax pledged to bondholders is levied on all taxable property within the special tax district, which encompasses 83.5% of the countywide tax base. The tax is levied and collected in the same manner as the county's general property taxes; tax revenue and the payment of debt service on the bonds are accounted for within a separate non-major governmental fund of the county.

UNEVEN FINANCIAL PROFILE: Fitch views the county's operating and financial profile as mixed, benefiting from ample legal capacity to increase revenues and an absence of labor related pressures but hindered by a recent history of inconsistent budgetary performance and moderate reserves.

MANAGEABLE LIABILITY BURDEN: Debt metrics are very low, outstanding debt is repaid at a healthy pace and capital needs are manageable. Retiree benefits represent a more moderate but still manageable long-term burden.

BROAD-BASED ECONOMY: A highly educated county labor force combine with the employment breadth and growth prospects of the Atlanta metropolitan area to form an expectation for stable to positive economic growth over the long term. County income measures exceed the state and approximate national norms.

RATING SENSITIVITIES

OPERATING STABILITY: A history of operating instability and rapid fund balance depletion remains the key credit concern. As such the county's commitment to maintaining a structurally balanced budget and compliance with its reserve policy are important rating considerations.

CREDIT PROFILE

RESERVES IMPROVED BUT STILL NARROW
The county's financial position has improved but remains somewhat limited. Audited financial statements for 2014 depict a $4.9 million operating surplus after transfers, and an unrestricted general fund balance equal to $16.46 million or 6.9% of spending. The unrestricted fund balance declined from $20.98 million or 7.4% in 2013, as the county designated $9.5 million of its 2014 fund balance as non-spendable; $2.97 million is related to prepaid and inventory items, and $6.49 million to prior advances to the hospital fund. The county expects to fully repay the hospital advances by 2020.

The original 2015 budget did not represent a dramatic shift from the prior year, with general fund reserves expected to decline $1-2 million. However, the finalized tax digest for fiscal 2015 was much stronger than originally anticipated. The countywide tax digest increased 9.6% from the prior year, whereas the original budget projected a 3.6% growth rate. General fund revenue is expected to be $19.9 million over original estimates, resulting in an estimated increase in the total fund balance of $17.2 million.

The county has a reserve policy equal to one month of spending across all of its operating tax funds (excluding countywide and unincorporated bond funds). The five operating tax funds consist of the general, fire, police, designated, and unincorporated fund. The county treats the tax funds separately from a budgeting and financial reporting point of view, but the money held in each fund is fungible. Unaudited results for 2015 show a $7.8 million increase in the aggregate tax fund balance to $43.6 million, equivalent to 8.4% or 1 month of spending.

FINANCIAL RESULTS TEMPERED BY PENSION UNDERFUNDING
The general fund recorded an operating deficit (after transfers) in each year from 2006-2010 and accumulated deficits from 2008-2011. The unrestricted fund balance in the general fund reached a low mark of -$33.8 million in 2010 or -13% of spending. Four consecutive years of reported operating surpluses aggregating $59.7 million have improved the general fund reserve position to levels noted above. However, during the same period the county underfunded the actuarially required pension contribution by $18.6 million, tempering Fitch's view of the county's financial performance during the period. County officials attribute the pension underfunding to variances in the workforce and payroll assumed by the actuary and the actual experience. Corrective action has been taken for 2015 resulting in an $8.6 million increase in the actuarially determined pension payment, which the county has fully funded in the budget.

STRONG BUDGETARY TOOLS BUT INCONSISTENT PERFORMANCE
The county has produced very uneven financial results despite several strong areas of budgetary flexibility. The county has unfettered legal capacity to increase its property tax revenues, the leading source of general fund revenue. The county enacted a 25.8% increase in the unincorporated area tax rate to 21.21 mills mid-year 2011 that paved the way for operating surpluses of $15.3 million (6%) in 2011, $28.5 million (10.9%) in 2012, and $11 million (4.1%) in 2013. The county subsequently self-imposed a cap on its millage rate at 21.21 mills, and lowered the millage rate to 20.81 mills for both 2015 and 2016 despite ongoing imbalance in several of the tax funds and an ending deficit fund balance of $7.8 million (-2.5% of spending) in the police fund.

The 2016 budget redistributes a portion of the millage rate to rebuild reserves in the police fund, but the aggregate fund balance of the tax funds is projected to decline by $4.4 million to $39.2 million or the equivalent of 6.9% of spending or 0.8 months. The general fund surplus generated in 2015 is essentially forecast to be depleted in 2016 with the result being a general fund balance at year end equal to 8.3% of spending or one month.

The county may also actively manage its employee wage and benefit costs, the primary driver of budgetary spending, as these terms are not subject to collective bargaining. Significant reductions in funded positions have already occurred, with nearly 2,100 positions or 24% of the workforce trimmed since 2008, raising questions as to the capacity for additional cuts without sacrificing service levels. Fixed costs related to debt and retiree benefits, which are discussed in more detail below, do not consume a considerable share of annual operating resources.

LONG-TERM LIABILITIES MANAGEABLE
Overall debt levels are estimated at a very low 1% of market value or $813 per capita. Debt levels should remain stable given the healthy pace of debt amortization (68% in 10 years) and the manageable slate of general government capital needs identified through 2019, none of which will be debt financed. Rising pension costs and liabilities are more concerning but Fitch believes they are manageable. The reported unfunded actuarial accrued liability (UAAL) for pension as of April 1, 2014 was $727.6 million; Fitch estimates a higher liability of $834.5 million (equal to 1.5% of market value) when the plan investment return rate of 7.5% is lowered to 7%.

Pension payments increased to $48.5 million in 2015 from $20.9 million in 2008. Fixed charges associated with pension, debt service, and OPEB consume about 20% of governmental spending, which is still manageable. The county adopted a hybrid plan for new hires effective Jan. 1, 2016 that it projects will save $3 million to $3.5 million per year. The county has also increased employee contributions for pension in recent years and adjusted the amortization of the UAAL to a closed 30-year level percentage of payroll from an open 30-year amortization. Additional changes to future benefits or contribution requirements would be subject to approval by the county board of commissioners.

PARTICIPATION IN GROWING ATLANTA METRO ECONOMY
The county benefits from its participation in the Atlanta-Sandy Springs-Roswell metropolitan statistical area (MSA). The area economy's strengths lie in its diversity of business and economic activity, a steadily expanding population, and significant transportation and trade infrastructure. According to IHS, Inc. the MSA ranks as the ninth largest economy in the U.S. as measured by nonfarm employment (nearly 2.6 million) and 10th largest by gross metro product ($337.5 billion). Both measures are expected to grow at a healthy rate relative to other large U.S. metro areas over the next several years.

County employment has expanded at a compound annual growth rate of 1.5% from 2010-2015, slightly below the 1.7% pace of job growth within the MSA over the same period. DeKalb County's December 2015 unemployment rate of 5.2% is slightly elevated relative to the MSA (4.9%) but below the state (5.5%). The quality of the labor force is very strong, with 40% of adult-aged residents of the county holding a bachelor's degree or higher. Key income measures are slightly above the state standard but modestly trail the nation.

The larger concern for the county and region as a whole from an economic point of view is their propensity to exhibit volatility in jobs and housing with the latter being particularly important given the general fund's reliance on property taxes as a source of revenue. Important for the county's property tax revenue growth prospects is current housing market data - the S&P/Case-Shiller Home Price Indices for December 2015 depict 5.53% annual growth for the Atlanta MSA, and the median home value in DeKalb County is up 10% on the year based on January 2016 data reported by Zillow Group.