Fitch Rates Prince William County, VA's GOs 'AAA'; Outlook Stable

Fitch Ratings assigns an 'AAA' rating to the following Prince William County Virginia (the county) general obligation (GOs) bonds:

--$93.79 million special obligation school financing bonds, Prince William County series 2015 issued by the Virginia Public School Authority (VPSA);

--$67.6 million general obligation public improvement bonds, series 2015.

Public improvement bond proceeds will be used to fund various general government capital projects. The bonds will be priced via competitive sale on July 29. Special obligation bond proceeds will be used to fund various school projects. The bonds will be priced via competitive sale on July 14.

In addition, Fitch affirms the following ratings:

--$245.6 million special obligation bonds, series 2011, 2012, 2013 and 2014 issued by the VPSA at 'AAA';

--$245.9 million county GO bonds at 'AAA' issued by the county;

--$57.3 million certificates of participation (COPs) and lease participation certificates (LPCs) at 'AA+';

--$3.34 million Prince William County Industrial Development Authority lease revenue bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The VPSA bonds are payable from debt service payments on underlying GO bonds made by the county on behalf of the school, held by the authority and pledged to the payment of the bonds.

The GO bonds are general obligations of the county, secured by its full faith and credit pledge and unlimited taxing power.

The COPs, LPCs and lease revenue bonds are secured by lease rental payments subject to annual appropriation by the county; essential assets are subject to foreclosure in the event of non-payment.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: Reserve levels and financial flexibility remain sound, supported by prudent fiscal policies, multi-year planning and ample revenue flexibility.

DYNAMIC ECONOMY: The county's strong and diverse economic base benefits from its location near Washington, D.C., with high wealth levels, a highly educated labor pool and low unemployment. Recent tax base growth has been robust.

FAVORABLE DEBT PROFILE: Prince William County continues to adhere to good debt management guidelines, which has resulted in moderately low overall debt and rapid amortization.

APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA+' rating on the COPs, LPCs, and lease revenue bonds reflects the county's credit characteristics and appropriation risk. Lease provisions are solid and Fitch views the leased assets as essential to county operations.

RATING SENSITIVITIES

STRONG FINANCIAL MANAGEMENT: Financial flexibility continues to be ample with healthy fund balance levels as a result of conservative budgeting practices. Although not expected, weakening of the county's financial flexibility would result in the rating change.

CREDIT PROFILE

The county is located in northern Virginia, approximately 25 miles southwest of Washington, D.C. It encompasses an area of 348 square miles, of which 18.8% is federally owned land. The county's population continues to grow at a rapid pace, reaching an estimated 446,094 in 2014.

HEALTHY RESERVE LEVELS

The county's unrestricted general fund balance remains healthy despite the use of committed general fund balance for capital spending. Fiscal 2014 ended with a deficit after transfers of roughly $10.9 million, below the $30 million budgeted appropriation. The resulting unrestricted general fund balance was $143.9 million, equal to 14.9% of expenditures and transfers out. The county continues to meet its healthy 7.5% unassigned general fund reserve fund balance policy. In addition to the 7.5% reserve, the county maintains a revenue stabilization reserve within the committed fund balance. As of fiscal year-end 2014 the balance was equal to 3.5% of general fund revenues which is well above the prescribed minimum balance which will be increased to 2% from 1% during fiscal 2016.

The fiscal 2015 adopted budget reflects a 2.8% increase over the prior year budget. The budget includes a 3.3 cent tax rate decline to a total tax rate of $1.148 per $100 of assessed value (AV; the levy did increase due to strong AV growth) and an $11.9 million fund balance appropriation. Year-to-date operations show strong positive variances driven by under-spending. Management is anticipating a $14 million operating surplus.

The fiscal 2016 adopted budget reflects a 3.74% increase over the prior year's budget. It includes a 2.6 cent tax rate decline to $1.1122 per $100 of AV and a $10.4 million fund balance appropriation. The budget increase funds a 4.2% increase to schools, additional public safety positions and equipment and a 2% market adjustment pay raise for most employees. The county historically outperforms its budget and replenishes a large majority of the annually appropriated fund balance.

SOLID REVENUE-RAISING FLEXIBILITY

The county is not subject to any limitation on its property tax rate or levy. Typical of Virginia counties, property taxes produced approximately 66% of fiscal 2014 general fund revenue. Property tax revenues increased annually between fiscal 2010 and 2014, reflecting increasing taxable assessed values and timely tax rate enhancements during slow tax-base growth years, demonstrating solid fiscal management. Tax rates are competitive.

STRONG LOCAL ECONOMY ANCHORED BY FEDERAL GOVERNMENT PRESENCE

The county benefits from its favorable location on the outskirts of the Washington, D.C. metropolitan region, its relative affordability, and a well-educated workforce. Its stable economic base, rooted in government and military employment, has expanded to encompass the targeted industries of life sciences, information technology and federal government agencies and contractors. To facilitate additional growth and diversification within the life sciences sector, the county completed the construction of the Prince William Science Accelerator in May 2014, the only public-private commercially available property featuring wet laboratory spaces in Northern Virginia, located within the Innovation Technology Park. Given the available land and existing utility infrastructure, over 2 million square feet of data centers have been constructed within the county since 2000.

The presence of the Quantico Marine Base along with the addition of the FBI Northern VA satellite office helps to attract contractors and federal agencies. The county remains exposed to changes in defense spending, although since 2005 $79 million in investment and 1,484 new jobs have been added. The federal government currently represents 6% of the resident employment base.

The county has experienced rapid population growth since the 1970s, with increases during the past decade outpacing those of the commonwealth by over three times. Despite a modest decline from March 2014 to March 2015 in the employment base and labor force, the unemployment remains low at 4.6%.

AFFORDABLE DEBT LEVELS

Overall debt levels are expected to remain moderately low given the county's comprehensive planning and debt affordability guidelines. Overall debt equals $2,143 per capita and 1.8% of market value, well below the county's policy of 3%. Amortization is above average and annual debt service costs are affordable at 10.3% of total governmental spending. The county's approximately $1.3 billion fiscal year 2016-2021 capital improvement plan is primarily debt financed ($714 million) and comprises mostly education related projects at $919 million. Paygo spending accounts for mainly a quarter of funding.

MODEST PENSION AND OPEB COSTS

Long-term liabilities related to employment benefits are not expected to pressure future operations. As of June 2014, the county's portion of the state's (VRS) pension program was funded at 79.5%. The unfunded actuarial accrued liability totals approximately $212 million or a very low 0.4% of market value. The county also maintains a small supplemental retirement plan which is well funded and a volunteer fire and rescue personnel length of service award program. The 2014 actuarially required contribution (ARC) for all plans accounted for a modest 4.1% of governmental expenditures. Notably, the county typically funds its ARC for other post-employment benefit (OPEB) which accounted for 1% of spending in fiscal 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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Virginia Economic Development Partnership and Virginia Employment Commission.

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
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987219

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

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