Fitch Rates Monterey County, CA's COPs 'AA-'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA-' to the following County of Monterey, CA certificates of participation (COPs):

--$47.2 million (2015 public facilities financing).

Proceeds will be used to finance tenant improvements to a county-owned office building and renovations to the east and west wings of the county courthouse.

In addition, Fitch affirms the following ratings:

--$109.8 million COPs (2007 refunding and public facilities financing) at 'AA-';

--Implied general obligation (GO) bond rating at 'AA'.

The Rating Outlook is Stable.

SECURITY

The 2015 COPs are payable from county lease payments for use of essential assets, subject to abatement. The county has covenanted to budget and appropriate for lease payments annually. The 2015 COPs do not have a debt service reserve fund and there is no security interest in the leased assets.

KEY RATING DRIVERS

SOUND FINANCIAL FLEXIBILITY: The county's financial position is sound, exhibited by historically structural balanced operations, solid unrestricted fund balances and regular pay as you go funding of capital.

STABLE AGRICULTURE/TOURISM ECONOMY: Monterey County's economy continues to show steady gains with a growing housing market and sustained employment growth. The county's dominant agricultural and tourism sectors continue to perform strongly.

FISCAL POLICIES SUPPORT PERFORMANCE: Financial management remains strong, characterized by prudent fiscal policies, regular monitoring and adjustment of budgets during the fiscal year, and active use of multi-year financial forecasts to guide long-term budget strategy.

LOW DEBT, LONG TERM LIABILITIES: Overall debt levels are low and liabilities for retiree benefits are manageable.

RATING SENSITIVITIES

BALANCED OPERATIONS: The county faces pressure from rising salary and benefit costs, requiring continued budget and service level monitoring. The Stable Outlook reflects Fitch's expectation that the county's careful budget management will continue to support balanced operations.

CREDIT PROFILE

Monterey County is located on California's central coast, about 100 miles south of San Francisco and 240 miles north of Los Angeles. The county encompasses approximately 3,300 square miles and includes 99 miles of coastline. The total population is approximately 429,000, three-quarters of whom reside within the county's 12 incorporated cities.

ECONOMIC RECOVERY CONTINUES

Monterey County's economy has continued to perform well in the wake of the recession, with steadily increasing employment levels. The county's jobless rate has traditionally exceeded state and national averages due to the dominance of the seasonal agricultural and tourism industries, but recent employment growth has been solid with a 2% gain in job growth year-over-year to March 2015. Nonetheless, unemployment remains elevated despite four years of annual job growth at 7.5% as of June 2015, compared to state and national rates of 6.3% and 5.3%, respectively.

The local real estate market has also experienced steady gains following the downturn. Assessed values (AV) fell a relatively mild 7.5% during fiscals 2010 and 2011 but have recorded a cumulative 18.2% increase through fiscal 2016. Year-over-year home prices gains of 4.1% as of July 2015, as reported by Zillow.com suggest continued though slowing AV gains for fiscal 2017.

SOLID FINANCIAL POSITION; DRAWS ON FUND BALANCE FOR CAPITAL

Monterey County has demonstrated consistently sound financial performance due largely to conservative budgeting and planning. The county added to fund balance the last four fiscal years, ending fiscal 2014 with a $13.9 million surplus after transfers resulting in unrestricted fund balance of $117 million, equal to a solid 23% of spending.

Departments expect to end fiscal 2015 about $11.8 million under budget, more than offsetting some program revenue underperformance. Tax revenues performed well, with property, sales, and hotel taxes all outperforming budgeted figures. Fiscal 2015 estimated results point to a $15.4 million use of fund balance for capital projects and other one-time uses, including the $13 million purchase of the Schilling Place office building being renovated with proceeds of the 2015 COPs. Estimated unrestricted fund balance of $99.8 million or 17.8% of spending remains sound.

The county's fiscal 2016 recommended budget (budget is adopted by Oct. 1) includes additional $17.9 million use of fund balance for capital and other one-time uses, including the county's matches for its jail expansion and new juvenile hall.

PRUDENT FISCAL POLICIES AND PRACTICES SUPPORT BALANCED LONG TERM FINANCIAL OPERATIONS

The county's strong management is reflected in its stable operations during the recent downturn and the successful turnaround of its hospital enterprise following a history of deficit operations. No general fund subsidies have been required for the hospital since 2008, and operating metrics continue to show annual improvements as the hospital's competitive position results in financial gains under the Affordable Care Act.

In addition, management efforts are supported by extensive financial policies, including use of ongoing revenues for ongoing expenditures and multi-year forecasting.

LOW DEBT LEVELS, RETIREE COSTS

Overlapping debt is low at 1.9% of AV and a moderate $2,414 per capita. The county's unfunded pension and other post-employment benefit (OPEB) obligations are manageable and carrying costs for debt service and retiree benefits are low at 9.5% of governmental expenditures in 2014.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria

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=989134

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989134

Endorsement Policy

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150806006413/en/

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

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