Fitch Rates Carteret County, NC's GOs 'AA+'; Outlook Stable
by Business Wire
Fitch Ratings assigns an 'AA+' rating to the following general obligation (GO) bonds of Carteret County, NC (the county):
--Approximately $24 million GO bonds, series 2013.
The bonds will sell on or around April 3rd and proceeds will be used to refinance the county's outstanding GO bonds, series 2006 and 2007.
In addition, Fitch affirms the following ratings:
--$45.1 million GO bonds at 'AA+';
--$4.7 million limited obligation bonds, series 2011 at 'AA'.
The Rating Outlook is Stable.
The county's GOs are secured by the county's pledge of its full faith, credit, and taxing power.
The county's limited obligation bonds are secured by installment payments, subject to annual appropriation, equal to debt service from the county to the County of Carteret Public Facilities Financing Corporation. Two school sites are used as lien collateral.
KEY RATING DRIVERS
SOUND FINANCIAL MANAGEMENT: Financial flexibility remains ample, as reflected in high reserve levels and robust liquidity metrics. Spending cuts to date have been moderate in nature, and the county's millage rate is low relative to those of its neighbors and the state's cap.
LIMITED LOCAL ECONOMY: Though concentrated in tourism, the local economy also benefits from retail trade activity and growth in maritime research and development and commercial fishing. Economic indicators trend below national averages but are on par with those of the state.
MANAGEABLE DEBT BURDEN: Overall debt levels are low, but expected to increase moderately in the near term due to future debt plans. Rapid amortization of principal helps to offset risk associated with additional debt issuance. Fitch expects annual carrying costs related to debt service and retirement benefits to remain manageable.
APPROPRIATION RISK: The LOBs contain solid legal provisions including a security interest for the benefit of bondholders in essential government assets. The one-notch difference between their rating and that of the GOs reflects appropriation risk.
The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Carteret County, with a 2011 population of 67,370, is located along the central portion of the North Carolina coast and contains the southern parts of the Outer Banks.
TOURISM-BASED ECONOMY, STABILIZING HOUSING MARKET
The county is a popular vacation area, benefitting from its coastal location. Second-home owners account for nearly two-thirds of residents. For calendar 2011, state data indicate that the county ranked 14th amongst the state's 100 counties for tourism impact. Occupancy tax receipts within the county have grown annually for the past three fiscal years, with 3% gains realized in 2012 after a cumulative decline of 11.6% from fiscal 2007 through 2009.
In addition to tourism, the county's local economy benefits from retail trade, commercial fishing, and maritime research and development. Retail sales within the county grew 7% year-over-year in calendar 2011, and Wal-Mart and Lowes are the county's second and third largest private employers, respectively, with almost 700 employees in aggregate. The completion of the county's two newest industrial parks, the Crystal Coast Business Park and the Jarrett Bay Marine Industrial Park, has helped support the advancement of maritime research and development in the area.
Economic indicators for the county trend slightly below national averages. As of December 2012, Carteret County's unemployment rate of 9.3% compared unfavorably to the nation's (7.6%) but remained on par with that of the state (9.5%). Joblessness within the county falls considerably during the high tourist season. Wealth indicators approximate state and national averages.
Housing values appear to be stabilizing since their total assessed value fell 22% upon reassessment in fiscal 2012. The county reassesses every four years. Without consideration of the reassessment, the county's total assessed value (TAV) had experienced modest annual increases since 2008, ranging from 0.7. TAV increased 0.5% in fiscal 2013, and growth for 2014 is estimated to be similar.
HEALTHY FINANCIAL FLEXIBILITY
Conservative budgeting practices and prudent fiscal stewardship have resulted in structural balance and healthy reserve levels. The county has achieved operating surpluses (after transfers) for at least the past five fiscal years, despite operating pressures due to the national recession. Liquidity metrics for the county are also strong, with fiscal 2012 cash and investments covering liabilities almost 15x.
Spending cuts to date have been moderate, and flexibility also remains to raise recurring revenues. Over the past several years, the county has been able to avoid layoffs, furloughs, and reductions in capital spending by achieving savings through departmental reorganizations and the elimination of non-critical programs. The millage rate (29 cents per $100 of AV) is highly competitive for the region and comfortably below the state cap of $1.50, providing the county ample room to raise property tax revenues in the future.
Fiscal 2012 ended with a $3.4 million addition to reserves, augmenting unrestricted fund balance to $26.5 million (30.7% of spending). Adding the state-required reserve for receivables, which Fitch views as more conservative than the treatment of receivables in other states, available fund balance for fiscal 2012, amounted to $34 million or strong 39.4% of spending.
FISCAL 2013 BUDGET
The adopted fiscal 2013 budget includes a fund balance appropriation, as is the county's wont. The $1.4 million budgeted draw will offset a corresponding loss in property tax revenues due to an one-cent reduction in the millage rate. Actual results to date show improvement to budget, and county management does not expect to use the full appropriation.
LOW DEBT, CARRYING COST BURDEN
Overall county debt levels are low on both per capita ($1,510) and percentage of market value (0.7% of MV) bases. Fitch expects these metrics to rise in the near term due to the county's future debt plans, which may include issuance of approximately $35 million of LOBs within the next three years for capital projects. Fitch notes that the county has no firm plans for issuance at this time and is in the early planning stages for these projects. Rapid amortization of outstanding principal (82.2% within ten years) mitigates risk related to this potential increase in the debt service burden.
Annual carrying costs related to debt service and retirement benefits represent an affordable 12.5% of governmental spending (less capital). Debt service represents the majority of these expenditures, totaling $9.5 million or a moderate 11% of spending.
All full-time employees participate in a state-sponsored pension plan, whose annual required contribution (ARC) the county funds on an annual basis. The fiscal 2012 ARC of $1 million represented a modest 1% of spending. The state plan is well-funded at 87% as of July 1, 2011. Other post-employment benefits (OPEB) are funded on a pay-as-you-go basis. As of December 2011, the unfunded actuarial accrued liability for OPEB totaled $6.4 million or a very low 0.04% of market value.
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. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria