Fitch Rates Chester County, PA's GO Bonds 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns the following ratings to the County of Chester, PA's (the county) general obligation (GO) bonds:

--$59,300,000 GO bonds, series of 2016, 'AAA.'

The bonds are expected to sell via negotiation in early to mid-March. Proceeds of the bonds will be used to advance refund a portion of the county's series 2006 GO bonds.

In addition, Fitch affirms the following ratings:

--Approximately $481 million outstanding GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the county backed by its unlimited tax pledge.

KEY RATING DRIVERS

ABOVE-AVERAGE SOCIOECONOMIC FUNDAMENTALS: The county benefits from high wealth and income levels and a stable and diverse employment base including major corporations and federal, state and local government institutions.

SIGNIFICANT FINANCIAL FLEXIBILITY: The county continues to maintain solid reserve levels through conservative budgeting practices and has considerable capacity to increase the property tax levy in order to maintain healthy financial operations. The county has sufficient cash flow to offset any delays in state revenue due the current Commonwealth budget impasse.

STRONG MANAGEMENT: County officials have consistently demonstrated proactive and effective financial stewardship by budgeting conservatively and maintaining strong expenditure controls.

MANAGEABLE LONG-TERM LIABILITIES: The county's debt profile is manageable, characterized by a moderate overall debt burden, modest future borrowing needs, average amortization and reasonable pension costs.

RATING SENSITIVITIES

SHIFTS IN FINANCIAL OPERATIONS: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong reserve levels and financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The county is located in southeastern Pennsylvania, 30 miles west of Philadelphia. The county's 2015 population estimate of 512,784 represents an increase of 2.7% since the 2010 Census. Fitch believes growth will remain at a moderate pace.

DIVERSE ECONOMY & TAX BASE SUPPORTED BY ABOVE-AVERAGE WEALTH LEVELS

The county's economy is well established and diverse among financial services, education, health services and agriculture sectors. Non-governmental employers are led by Vanguard Group, QVC, Inc., Siemens Medical Solutions, and Giant Food Stores. The county's unemployment rate of 3.2% in November 2015 remains well below the state and national averages of 4.1% and 4.8%, respectively, and lower than the 3.5% rate recorded a year earlier.

Taxable assessed value, which is 72% residential, has remained fairly stable over the last several years and posted mild growth in fiscal 2015. The county enjoys a diverse tax base with little concentration in any one sector or taxpayer. The top 10 taxpayers represent a modest 2.4% of total assessed valuation. Total property tax collections are strong, averaging over 99% for the last five years.

Wealth levels are well above average with 2014 median household income equal to 154% and 159% of state and national levels, respectively, making Chester County the wealthiest county in the state.

STRONG RESERVE LEVELS DESPITE DRAWDOWNS

The county's general fund balance remains strong due to conservative budget practices, expenditure controls, and a stable flow of revenue driven primarily by property taxes, which comprise approximately 73% of general fund revenues. The county's overall tax rate is well below statutory limits and has remained relatively flat over the past four years.

Management historically has appropriated a portion of general fund reserves to balance the budget. The Fiscal 2015 budget appropriated $8.8 million in general fund balance; however, due to positive unaudited 2015 results the majority of that appropriation will be replenished. Early estimates indicate a draw on general fund balance of $1 million or less. If the use of reserves materialized, the estimated general fund balance for fiscal 2015 is expected to be $36.8 million, a healthy 25.3% of budgeted general fund spending. The county reported property tax collections were approximately $1.1 million above budgeted projections. Expenditures performed better than budgeted estimates reflecting management's conservative budgeting practices and ongoing cost control measures including workforce reductions through attrition and managing public safety employee overtime.

The 2016 budget includes an appropriation of $8 million, $800,000 less than the fiscal 2015 appropriation. The general fund budget grew a modest 1.4% with no property tax rate increase. The property tax levy is expected to grow 1% ($1.2 million) due to modest growth in the assessed valuation. The county's general purpose tax rate is 2.794 mills, well below the maximum statutory tax rate of 25 mills which provides the county with ample revenue raising capacity for operations. Fitch believes the county will maintain substantial financial flexibility given its strong track record of conservative budgeting, expenditure controls and ample general fund balance.

MANAGEABLE DEBT PROFILE

The county's debt levels of $4,785 per capita and 4% of market value are moderate to above-average due primarily to a significant amount of overlapping debt. Debt levels should remain fairly stable as the county's debt plans over the next five years are modest. The capital improvement plan includes approximately $121 million of capital expenditures to be funded with bond proceeds from 2017 through 2020. Amortization is average with approximately 50% of debt paid off over the next 10 years however new debt issuance is expected to be in line with principal retirement.

ADEQUATELY FUNDED PENSION PLANS

The county-operated pension plan is well-funded at 91.9% as of Jan. 1, 2014, based on the plan's 7.5% rate of return. Using a more conservative 7% rate of return, Fitch estimates the funded ratio to be still adequate at an estimated 87.1%. The county traditionally makes 100% of its annual required contributions (ARC) and in fiscal 2014 its ARC was $7.8 million, a low 2% of total budgeted government spending. The county is updating its actuarial assumptions in determining the overall unfunded liability and a slight decrease to the funding ratio is expected. Other post-employment benefit (OPEB) costs are limited and the elimination of retiree health benefits beginning in July 2006 should reduce the liability over time. The county makes pay-as-you-go payments and had unfunded actuarial accrued liabilities of a negligible $2 million as of Dec. 31, 2013. Carrying costs for debt service, pension and OPEB equaled a modest 11.5% of 2014 total government spending.

Additional information is available at 'www.fitchratings.com'.

Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and

Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published in the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from CreditScope and Lumesis.

Applicable Criteria

Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875108

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999152

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999152

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160205005749/en/

Fitch Ratings
Primary Analyst
Shannon McCue
Analyst
+1-212-908-0593
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Monica Guerra
Director
+1-212-908-4924
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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