Fitch Rates Wise Co., VA's $15MM Taxable Lease Rev BANs 'A+'; Outlook Stable
Fitch Ratings has assigned the following rating to the bond anticipation notes (BANs) of the Industrial Development Authority of Wise County, VA (IDA) as follows:
--$15 million Series 2012 Taxable Lease Revenue BANs 'A+'.
The notes are expected to sell via negotiation on Dec. 4, 2012. Proceeds will be used to refinance the county's 2011 lease revenue bond anticipation notes for debt service savings.
In addition, Fitch affirms the following ratings:
--$14 million Industrial Development Authority of Wise County public facilities lease revenue bond anticipation notes (School Projects), series 2011 at 'A+';
--Implied county general obligation (GO) rating at 'AA-'.
Fitch also withdraws its rating on the following bonds as the bonds were never issued:
--$31 million public facilities lease revenue bonds (School Projects), series 2011.
The Rating Outlook is Stable.
Public facility lease revenue bond anticipation notes are secured by lease payments subject to annual appropriation by the county. The notes are also secured by a lien on the Eastside high school.
KEY RATING DRIVERS
LIMITED LOCAL ECONOMY: The county's private sector economy is dominated by the coal mining industry, which along with a new coal-fired utility plant result in very high tax base concentration.
SOLID FINANCIAL PROFILE: Sound financial management and planning have resulted in healthy reserve levels that consistently exceed the adopted fund balance policy.
NEUTRAL DEBT PROFILE: The overall debt burden is expected to remain stable due to county plans for pay-as-you-go capital funding and continued adherence to prudent debt policies.
LIEN ON ESSENTIAL ASSETS: The lease revenue BANs feature solid legal provisions and are secured by a lien on school buildings, which Fitch considers essential county property. In the event of non-appropriation, noteholders have the right to take possession of the leased assets, among other remedies afforded by law.
Wise County is located in southwest Virginia, approximately 50 miles northwest of Bristol. The county encompasses a land area of 407 miles with a population of roughly 42,000 that has declined slightly(less than 2%) over the last decade.
CONCENTRATED TAX BASE AND WEAK WEALTH INDICATORS
The economy is limited, with private sector jobs concentrated in coal production. The natural resources and mining sector accounts for 13% of employment and construction jobs account for 6.7%. However, construction jobs have continued to decline as construction at the new Dominion Power hybrid power plant has been completed. Government employment accounts for 26% of employment, with retail trade comprising 14% and health care and social services 13%.
Per capita income and median household income of county residents is very low relative to state and national averages. The county unemployment rate as of August 2012 was 7.6%, which is well above the state's rate of 5.8% but comfortably below the national average of 8.2%.
The county's tax base is highly concentrated. The top five taxpayers account for 34% of fiscal 2012 assessed value (AV) and are comprised of coal, gas and utility companies. The top taxpayer, Dominion Power (IDR 'BBB+' by Fitch), accounts for a significant 15% of AV. Once the plant's valuation is fully recognized in fiscal 2015, the estimated total of $1.38 billion will represent more than 30% of projected total AV.
HEALTHY RESERVE BALANCES
The county's reserve levels remain healthy and continue to exceed the adopted fund balance policy. As of fiscal 2011 year-end, the county had an unrestricted general fund balance (committed, assigned and unassigned per GASB 54) of approximately $21 million or 40% of spending; of the total, $9 million was committed for school projects and about $12 million was unassigned. The unassigned balance, at 23% of the spending and transfers out, was well above the 10% policy threshold.
Unaudited fiscal 2012 results show revenues approximately $3 million ahead of budget, mainly due to higher property taxes, and expenditures in-line with budget. The county expects to add $1.8 million to its reserves, increasing the unrestricted balance to nearly $23 million or an ample 44% of expenditures.
CONSERVATIVE 2013 BUDGET
The 2013 budget keeps the tax rate unchanged at a competitive
$0.57 per $100 of AV and includes a $2 million use of committed fund balance for schools. The budget is conservative as it does not incorporate any additional property tax revenue from the new Dominion plant above what was received in 2012.
NEUTRAL DEBT PROFILE
The county's debt profile is neutral, characterized by an average debt burden, average principal amortization (48% in 10 years), and limited borrowing plans. Overall debt totals a moderate 2.3% of market value and a low $1,882 per capita. Debt service for fiscal 2013 accounts for an affordable 8% of spending, which is below the county's 10% policy cap. This percentage is likely to drop to below 5% after the unbudgeted Dominion tax revenues are collected.
The five-year capital plan totals a manageable $30.9 million. The county anticipates funding 75% with debt ($23 million), 25% from the general fund ($7.6 million) and 1% from grants. Major projects include courthouse renovations and landfill related projects.
The amount of debt issued to fund the capital plan may change, depending on the amount of tax revenues from Dominion. Surplus tax revenues from Dominion, after debt service is paid, are expected to be transferred to the capital reserve fund. The county projects a $12.3 million capital reserve balance by 2017.
MODEST PENSION AND OPEB COSTS
Long-term liabilities related to employment benefits are not expected to pressure future operations. As of June 2011, the county's pension program, provided through the Virginia Retirement System, was adequately funded at 77% after adjusting the internal rate of return to 7%. The school board's pension program is funded at a lower 65%. The unfunded actuarial accrued liability for both programs total approximately $12 million or a very low 0.25% of market value. The 2012 combined annual required contribution accounted for less than 2.5% of spending.
Under the terms of the financing lease, Wise County will make basic rent payments to the IDA, subject to appropriation, equal to debt service on the lease revenue bond anticipation notes. The authority pledges the revenue received to the trustee for payment of principal and interest. Fitch believes the essentiality of the financed projects, plus the right of noteholders to take possession of the assets in the event of non-appropriation, provide sufficient incentive to appropriate.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in
Fitch's Tax-Supported Rating Criteria, this action was
additionally informed by information from Creditscope,
University Financial Associates, S&P/Case-Shiller Home Price
Index, IHS Global Insight, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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