Fitch Ratings has assigned an 'AA-' rating to the following general
obligation (GO) bonds of Wicomico County, Maryland (the county):
--$12.5 million general obligation public improvement bonds of 2013.
The bonds are expected to be sold via a competitive sale on October 15.
Proceeds will be used to finance the construction of the Bennett Middle
School and renovation of the Parkside High School.
In addition, Fitch affirms the following ratings:
--$94.3 million of outstanding GO bonds at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by the full faith, credit, and taxing power,
subject to constraints set forth in the county charter. Revenues derived
from taxes on properties shall not increase, compared with the previous
year, by more than 2%, or by the consumer price index for all urban
consumers, whichever is lesser. New construction and funding the local
board of education's budget are not subject to the charter limitations.
KEY RATING DRIVERS
STRONG FISCAL MANAGEMENT: Timely revenue enhancements and conservative
budgeting has resulted in positive operating results, ample reserve
levels and strong liquidity.
BELOW AVERAGE ECONOMIC PROFILE: The county is the economic and
commercial center for the lower eastern shore region of Maryland,
however, key economic metrics remain stressed and below state and
DEBT BURDEN EXPECTED TO REMAIN LOW: Overall debt levels are low,
amortization of principal is rapid, and county officials prudently
analyze capital needs alongside debt affordability.
CONTINUED STRONG FINANCIAL POSITION: 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.
The county is located on the Delmarva Peninsula in southeastern Maryland
and had an estimated 2012 population of 100,641.
CONSERVATIVE BUDGETING & REVENUE ENHANCEMENTS LEAD TO OPERATING SURPLUSES
In fiscal 2012 the county prudently increased the property tax rate and
continued to make expenditure reductions to offset revenue pressures
stemming from ongoing decline in taxable assessed value (TAV). As a
result, the county realized a notable $8.1 million (7.7% of spending)
operating surplus after transfers, increasing the unrestricted balance
to $37 million or an ample 35.1% of general fund spending. The rainy day
fund, which is included in the unrestricted balance, remains funded at
the policy level, equal to 5% of the general fund budget (or $5.8
Officials expect to increase the county's financial cushion in fiscal
2013 with a $2.8 million surplus (2.5% of spending), which would mark
the third consecutive year of positive year-end results. Favorable
operations are due to conservative budgeting and revenue enhancements
made during the budgeting process.
DIVERSE REVENUE STREAM
The county derives the majority of its revenues from property taxes
(52%). A charter imposed revenue limit, approved by county voters and
effective in fiscal 2002, constrains the county's property tax revenue
growth to the lesser of the CPI or 2%, new construction and funding the
local board of education's budget are not subject to the charter
limitations The county increased the property tax rate in fiscal 2013
and 2014 to the maximum rate allowable under the charter.
Income tax revenue accounts for 37% of revenues. Income tax revenues
show a positive trend over the past three fiscal years, but estimated
year fiscal 2013 results show a 3% decline due to an over-distribution
in fiscal 2012 from the state and continued strained economic
conditions. Fitch notes the county implemented a mid-year increase to
the income tax rate to the maximum rate of 3.2% on January 1, 2013.
The county reports that it retains options to raise revenue, which
includes increasing the recordation tax rate, imposing a transfer tax,
increasing fees and/or increasing the real property tax rate for
education funding, which accounts for the bulk of general fund spending
at approximately 40% (education funding is not subject to the revenue
cap). Despite recent increases to the property tax rate, rates remain
FISCAL 2014 BUDGET BALANCED
The 2014 budget reflects a 9% increase ($11 million) in expenditures
year-over-year. To fund the increase the county again increased the real
property tax rate to the maximum rate allowed under the charter and
increased the appropriated fund balance by $1.9 million. Also, the
county will realize the full-year effect of the 0.1% income tax rate
increase ($1.3 million). The budget also includes a $4.5 million
increase in disparity grant moneys from the state.
The budget funds $8.5 million of one-time capital funding and other
non-recurring expenses, which is a point of flexibility for future
budgets, $1.3 million in increased funding for educational operations
($581,498 of the increase due to increase in the contribution to teacher
pension costs), a $1.68 million increase to pension funding for county
employees, and a 1.7% cost-of-living pay raise. Given the county's
history of strong financial performance, Fitch expects operations to
remain positive and reserves to remain ample.
ECONOMIC INDICATORS REMAIN WEAK
While agriculture, higher education and healthcare provide a solid
foundation for the economy, socioeconomic indicators are weak. July
employment is down 3.3% year-over-year, in contrast to the employment
base of the state and nation which continues to grow. Further, the
county's employment base remains about 7% below the pre-recession peak,
trailing the rate of job recapture by the state and nation. The county's
unemployment as of July 2013 was above average at 8.4%. Wealth
indicators are fairly in line with national averages but are well below
state averages driven by high wealth counties around the Washington D.C.
Total taxable value has declined 17% between fiscal 2012 and 2014. The
statewide triennial assessment cycle creates a lag in realized TAV
declines, and the county projects declines to continue through fiscal
FAVORABLE DEBT PROFILE
Overall debt levels are low at roughly $1,106 per capita and 1.7% of
market value, and amortization is rapid at approximately 69% in 10
years. Debt servicing costs are low at 5.3% of total governmental
The county's fiscal years 2014-2018 capital improvement plan totals
$258.8 million, including the current issuance. Additional debt plans
are modest at $22 million and pay-go funding totals $13.2 million. State
and federal moneys fund about 51% of the plan while $68 million of the
plan is currently unfunded. The majority of the plan (82%) funds school
projects and public safety (10%).
PENSION & OPEB LIABILITIES REMAIN WELL FUNDED
The county provides a single employer retirement system which remains
very well-funded at 85.4% (adjusted by Fitch to a 7% investment rate of
return (IRR) from 7.75%). Importantly the county has restored its
funding support for the pension plan, following several years of
contributions that were significantly lower than the actuarial required
contribution (ARC). The county funded 95% and 117% of the ARC in fiscal
2013 and 2014 respectively.
The 2013 budget includes a $3.65 million contribution to other
post-employment benefits (OPEB), which represents 127% of the ARC. As of
June 2013 the funded ratio was 30% and the trust balance totaled $46
million as of June 30, 2012. The UAAL of $22.8 million accounts for less
than half a percent of market value. Pension and OPEB costs accounts for
a low 5% of total 2013 budgeted governmental spending.
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, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, National
Association of Realtors, Maryland Department of Labor, Licensing and
Regulation, and Maryland Department of Business and Economic Development.
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
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.
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
Copyright Business Wire 2013