Fitch Rates Carroll County, MD's $74MM GOs 'AAA'; Outlook Stable

Fitch Ratings assigns an 'AAA' rating to the following general obligation (GO) bonds of Carroll County, Maryland (the county):

--$74 million GO consolidated public improvement and refunding bonds of 2014.

The bonds are expected to be sold via a competitive sale on Oct. 30, 2014. Bond proceeds will be used to refund the county's series 2004 bonds and a portion of series 2008 for debt service savings. Proceeds will also be used to finance various capital projects.

In addition, Fitch affirms the following ratings:

--$306 million GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the county's full faith and credit taxing power, for which the county is empowered and directed to levy unlimited ad valorem taxes.

KEY RATING DRIVERS

SOUND RESERVES: Carroll County's fiscal operations are well managed through long-term financial planning and frequent monitoring of revenues and expenditures, resulting in healthy reserve levels.

STABLE ECONOMY: Low unemployment reflects the county's close proximity to major employment centers as well as growing employment opportunities within the county.

LOW DEBT BURDEN: The county's debt burden is expected to remain low given its capital needs, and pension and other post-employment benefit (OPEB) costs are manageable.

RATING SENSITIVITIES

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.

CREDIT PROFILE

Carroll County, located in north-central Maryland, covers 452 square miles and is within the Baltimore metropolitan area. The county, estimated population of around 167,564 serves as a bedroom community, with approximately 55% of residents commuting to work centers outside of the county.

STRONG FISCAL MANAGEMENT LEADS TO FAVORABLE 2013 RESULTS

Throughout the economic downturn the county has maintained healthy reserve levels guided by prudent policies and long-term planning. Management actions have included reducing capital spending and staff, as well as control of salary increases. The county's main revenue sources are property taxes and income taxes, which accounted for 53% and 34% of fiscal 2013 revenues, respectively.

Fiscal 2013 operating results showed a $3.68 million deficit (less than 1% of budget), which is more favorable than the budgeted $16.8 million appropriation of fund balance. During the year the county used $26 million toward pay-as-you-go capital funding. Strong collections of the recordation tax and favorable expenditure variances contributed to the better than budget results.

The county closed fiscal 2013 with a strong unrestricted fund balance of $52 million or 13.8% of spending. The county is required by state law to appropriate the unassigned fund balance as a revenue item in the second subsequent fiscal period, but recent state legislation lifts this restriction effective fiscal 2015, thereby increasing financial flexibility for the county.

FISCAL 2014 RESULTS APPEAR FAVORABLE

Unaudited fiscal 2014 operating results indicate a modest $843,000 (0.23% of spending) deficit which is notably better than the $14.8 million budgeted use of fund balance. Positive variances were due to salary savings, operational spending under budget and additional miscellaneous revenues. Pay-as-you-go spending was reduced to $23 million. The unaudited year-end unrestricted general fund balance of $48.8 million remains a strong 13.2% of spending.

The fiscal 2015 budget of approximately $369 million is essentially flat to fiscal 2014. The budget includes a $14.3 million appropriation of general fund balance, which is similar to prior years. The real property tax rate remained changed but the income tax rate was reduced although a 2.3% increase in revenue is projected. Fitch believes the county will continue to maintain healthy reserve levels despite the sizable fund balance appropriation as the county historically outperforms budget.

The county prudently develops a six-year fiscal forecast. The county's six-year operating forecast is balanced with a significantly reduced use of fund balance due to the aforementioned change in legislation. The forecast also includes a $3.3 million to $4 million contingency.

SIGNIFICANT REMAINING FINANCIAL FLEXIBILITY

At $1.018 per $100 of assessed value in fiscal 2015 the county's property tax rate is competitive within the northern Maryland area. The property tax rate and levy are not subject to limitation. The county's income tax rate (3.03% effective Jan. 1, 2015) is competitive and below the statutory cap of 3.20%. Increasing the income tax rate to the cap would generate approximately $7.2 million or 2% of 2014 unaudited spending, although no such increase is presently contemplated.

RESIDENTIAL ECONOMY WITHIN THE BALTIMORE METRO AREA

The local economy contains a mix of manufacturing, industrial, service, and agricultural businesses. Examples of employers with headquarters or major presences in the county include Random House and Jos. A. Bank Clothiers. Additional significant employers in the county are two hospitals, two retirement communities, and two colleges.

Future economic growth prospects are favorable which should continue to facilitate a low unemployment rate. The county's unemployment rate of 5.8% for August 2014 is comfortably below the Baltimore-Towson metro, state, and national averages. The education level of county residents compares favorably to the nation, enhancing the county's ability to attract and retain employers. Median household income is strong at 114% of the state average and 157% of the national average. The poverty rate is low at 5.5%.

The state divides the county into three assessment groups, with annual reassessments rotating each year thereby smoothing annual volatility in tax base performance. Reassessments declines of just over 5% a year hit all three groups in fiscal years 2011 through 2013. In fiscal 2014 the reassessment decline moderated to 1.5%. The county is projecting a less than 1% decline in fiscal 2015 with values slowly climbing thereafter. The fiscal 2014 tax base is a sizable $18.5 billion and is well diversified with no taxpayer concentration.

FAVORABLE DEBT PROFILE

Overall debt levels are low at under $2,163 per capita and 1.95% of market value, and amortization is rapid at 63% in 10 years. The county's fiscal years 2015-2020 capital improvement plan totals $380 million of which the county expects to issue approximately $116.7 million in general obligation bonds (including this sale), which is about the amount of debt repaid during this period. Borrowings are expected annually. Debt service costs accounted for a manageable 9.7% of governmental spending in fiscal 2014 and debt service is expected to remain manageable given the moderate borrowing needs and rapid amortization of outstanding debt.

MODEST PENSION AND OPEB COSTS

The county's pension plans are well funded and the unfunded liability is modest relative to county property values. The county provides pension benefits to its employees through the county employee pension plan, to police officers and volunteer firefighters through the county certified law officers' pension plan and volunteer fireman pension plan; the county also contributes to the statewide pension system for teachers' normal costs. For fiscal 2014, pension contributions accounted for 2% of spending. The county also provides OPEB to its retirees. During fiscal 2014 the county contributed $10 million, 96% of the ARC.

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, American Community Survey (2006-2010).

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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=906815

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