Fitch Rates Fulton County, GA's $200MM TANs 'F1+'; GO Affirmed at 'AA'; Outlook Revised to Stable

Fitch Ratings has assigned an 'F1+' rating to the following tax anticipation notes (TANs) for Fulton County, Georgia (the county):

--$200 million general fund TANs.

The TANs will be sold via competitive sale on May 6. Proceeds will pay certain current expenses of the county prior to the receipt of revenues from taxes levied or to be levied for the general fund in 2015. The TANs mature Dec. 31, 2015.

Fitch also affirms the following ratings:

--$151.1 million general obligation (GO) library bonds, series 2010A and (taxable Build America Bonds), series 2010B at 'AA';

--$80.4 million certificates of participation (COPs), series 2009 at 'AA-' (issued by the Fulton County Facilities Corporation).

The Rating Outlook for the GO library bonds and COPs is revised to Stable from Negative.

SECURITY

The TANs are general obligations of the county payable from revenue received by the county during calendar year 2015 as well as other available funds. The GO library bonds are a general obligation of the county backed by the levy of ad valorem taxes without limitation as to rate or amount. The COPs are payable from rental payments made by the county, subject to annual appropriation.

KEY RATING DRIVERS

LINK TO GO RATING: The 'F1+' rating assigned to the TANs corresponds to the long-term rating on the county's GO bonds. The TAN rating also considers the satisfactory projected coverage on the repayment date and sufficient levels of borrowable funds.

FUND BALANCE RESTORATION: Unaudited financial results for 2014 yield a much healthier fund balance position than previously projected, abating near-term pressure on the county's rating. Historically, management has maintained an adequate financial cushion despite volatile revenues and uneven operating results.

HEALHTY DEBT AND ECONOMIC POSITION: Very high long-term credit quality is supported by the county's low debt levels, manageable retiree liabilities, strong economic characteristics and its participation in the economy of the Atlanta metropolitan statistical area (MSA).

CERTIFICATES OF PARTICIPATION: The COPs rating is notched down from the GO rating reflecting risk to annual appropriation and Fitch's view of the county's strong incentive to appropriate based on the essentiality of the leased assets.

RATING SENSITIVITIES

SHORT-TERM RATING MAP: Short-term debt ratings are related to those of long-term obligations; a lowering of the county's GO rating below 'AA-', though not presently anticipated, could result in a reduction in the TAN rating.

MAINTENANCE OF RESERVES: The county's long-term ratings are particularly sensitive to the county's ability to maintain an adequate financial cushion that tempers risk to periods of revenue and expenditure volatility. Fitch anticipates stable economic performance and no material change in the county's debt profile in the near term.

CREDIT PROFILE

IMPROVED GENERAL FUND POSITION

Fitch's Outlook revision to Stable from Negative reflects the agency's view of the county's improved financial cushion following a review of preliminary financial results for the fiscal year ended Dec. 31, 2014. Audited financial statements for 2014 are not expected to be released until June but projections provided by county management point to a $42.8 million increase in the general fund balance on a cash basis. The ending general fund balance of $127.4 million equates to 21.9% of spending, a significant improvement over the budgeted year-end balance of $44 million or 7%, below the county's 8.3% fund balance policy in effect at the time. Current and prior year property taxes were $39.5 million over budget in 2014 due to a higher than anticipated tax digest and collection rates. Total general fund revenues were originally budgeted to increase $66.8 million on the year following a notable increase in the millage rate. Spending was lower than budget by $43.5 million in 2014 largely attributed to $30.6 million in salary savings (mostly represented by holding unfilled positions open).

Fitch views the adopted 2015 budget as fairly conservative. Operating receipts are estimated at $610.9 million compared to budgeted 2014 receipts of $584.8 million (and actual unaudited 2014 receipts of $624.7 million). The budget increases spending a modest 0.5% over the prior year budget and reportedly maintains service levels at the prior year level. Included in the budget is $21.3 million for certain non-recurring capital expenses and about $8 million to fund yet to be approved wage increases. The budget continues to depict fund balance usage ($17.6 million or 2.8% of spending) which is notably lower than recent year's budgets. Management is already projecting a reduction in the fund balance drawdown to $13.4 million based on year to date results.

The county also increased its long-standing fund balance policy this year to 16.7% of budgeted expenditures from 8.3%. Consistent adherence to this policy in the context of the annual budget process and other policy decisions on spending will certainly be viewed as a credit positive.

GOOD NOTE COVERAGE

Property taxes typically account for 75% of annual general fund receipts but are not levied until July 1 and do not become delinquent until Oct. 15. Fulton County's fiscal year commences on Jan. 1; as such, it regularly sells TANs to meet cash flow requirements until property taxes are collected. Although legal provisions do not require set-aside for repayment in advance of note maturity on Dec. 31 the county typically earmarks property taxes received in October for repayment.

The county's borrowing needs are viewed as somewhat high by Fitch at roughly a third of projected 2015 general fund receipts. Note coverage is good nonetheless, estimated by Fitch at 1.57x. The coverage calculation does not take into account considerable borrowable resources approximating $200 million at the close of 2014, including $148 million in the county's water and sewer renewal and extension fund. TAN repayment coverage improves to roughly 2.6x inclusive of available funds outside of the general fund. The projected ending general fund cash balance of $114 million after TAN repayment is equivalent to 19% of projected operating receipts, limiting risk to unanticipated cash flow fluctuations. Property tax collections are excellent, averaging 100% dating back to 2005 and 101.7% in 2014. The county has assumed a reasonable 2% growth factor for the 2015 tax digest which will not be known until June and management reports no significant change in appeal activity from recent years.

PROPERTY TAX LAWSUIT REMAINS A RISK

In 2013, the state legislature enacted HB 604, suspending Fulton County's ability to assess a millage rate above the roll-back or revenue neutral rate through Jan. 1, 2015. The bill also requires an affirmative vote of five of the seven county commissioners to adopt any increase thereafter (rather than a simple majority). The county subsequently repealed HB 604 pursuant to the home rule powers granted to counties under Article 9 of the Georgia Constitution and in 2014 increased the general fund tax rate by 1.57 mills or 15%.

Two lawsuits were filed challenging the county's actions, one of which has since been voluntarily dismissed. The remaining case sought a permanent injunction preventing the collection of any ad valorem tax containing the millage rate increase, estimated at $76 million, which the court denied. There are no additional hearings scheduled in the case. Fitch will continue to monitor the lawsuit and all future actions (if any) of the legislature that serve to limit the county's budgetary autonomy or flexibility, which Fitch would view as having a negative impact on the county's credit quality.

LOW TO MODERATE LONG-TERM LIABLITY BURDEN

The county's practice of pay-go financing for capital projects and rapid debt amortization continue to keep debt levels low. Overall debt is estimated by Fitch at just 0.7% of market value or $982 per capita (inclusive of the debt of overlapping municipalities and authorities). No additional borrowing plans exist. Fitch notes as a weakness the absence of a formal multi-year capital improvement plan (CIP) - a standard practice for most local governments of significant size. Risk inherent in the absence of a CIP is further highlighted by the county's strong population growth that generally places demand on infrastructure and maintenance needs.

The county administers a single-employer defined benefit pension plan that has been closed to new employees since 1999 (new hires participate in a 401(a) defined contribution plan). The plan reported a funded ratio of 75% on an actuarial basis as of Dec. 31, 2014, adjusted to 70% by Fitch substituting the plan's 7.7% rate of return assumption for 7%. The Fitch-adjusted unfunded actuarial accrued liability (UAAL) is estimated at $541 million, which represents only 0.4% of the county's market value.

Other post-employment benefits (OPEB) are much more notable at $1.8 billion or 1.3% of market value as of Jan. 1, 2013, reflecting a relatively high subsidy from the county toward the premium cost for retiree health care coverage (75%-90% based upon the plan chosen by the participant). The annual cost of funding pension, bonded indebtedness, and the pay-go amount for OPEB consumes about 18% of spending, a level considered moderate by Fitch.

PARTICIPATION IN ATLANTA ECONOMY VIEWED FAVORABLY

Fulton County is situated at the core of the Atlanta MSA, the ninth largest MSA in the nation measured by population (5.7 million) and nonfarm employment (2.5 million). Growth has been strong - over the prior decade the Atlanta MSA's population has expanded by a 1.7% CAGR. Key measures of economic expansion hold up well when measured against other large U.S. metro areas - nonfarm jobs increased at a 0.8% CAGR over the same period, real personal income 1.7%, and real gross metro product 1%.

Fulton County captures a good share of the Atlanta MSA's economic activity. County employment nears 480,000 as of February 2015. The county is home to the corporate headquarters for large employers including Coca-Cola, AT&T, Home Depot, and Delta Air Lines. It lies in close proximity to Hartsfield-Jackson International Airport (Hartsfield), the world's busiest airport. The county's population continues to steadily expand reaching 996,319 residents in 2014. Fulton County's median household income of $56,857 is 116% of the Georgia and 107% of the U.S. benchmarks. The county has a very educated workforce with 48% of its adult-aged population holding a bachelor's degree or higher (roughly 170% of the state and national norm).

The larger concern for the county from an economic point of view is its propensity to exhibit volatility in jobs and housing - the latter being particularly important given the general fund's reliance on property taxes as a source of revenue. The county's tax digest fell 20.8% from 2008 to 2012 before posting modest growth of 0.3% in 2013 and 2.1% in 2014. Current data point to continued tax digest growth - the S&P/Case-Shiller Home Price Indices for January 2015 depicts 4.9% annual growth for the Atlanta MSA, while the median home value in Fulton County is up 13.4% on the year based on February data reported by Zillow.

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, and Zillow Group.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'Rating U.S. Public Finance Short-Term Debt' (Jan. 7, 2015).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

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

U.S. Local Government Tax-Supported Rating Criteria

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

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983594

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