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MOODY'S ASSIGNS Aa1 RATING TO CARROLL COUNTY'S (MD) $36.3 MILLION G.O. BONDS OF 2010 (CONSISTING OF SERIES A, B, AND C)

15 Oct 2010

Aa1 RATING APPLIES TO $363.2 MILLION IN PARITY BONDS, INCLUDING CURRENT ISSUE

County
MD

Moody's Rating

ISSUE

RATING

Consolidated Public Improvement Refunding Bonds of 2010 (Series A)

Aa1

  Sale Amount

$12,600,000

  Expected Sale Date

10/17/10

  Rating Description

General Obligation

 

Volunteer Fire Department Refunding Bonds of 2010 (Series B)

Aa1

  Sale Amount

$2,215,000

  Expected Sale Date

10/17/10

  Rating Description

General Obligation

 

Consolidated Public Improvement Bonds of 2010 (Series C)

Aa1

  Sale Amount

$21,500,000

  Expected Sale Date

10/17/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 15, 2010 -- Moody's Investors Service has assigned a Aa1 rating to Carroll County's (MD) $12.6 million Consolidated Public Improvement Refunding Bonds of 2010 (Series A), $2.2 million Volunteer Fire Department Refunding Bonds of 2010 (Series B) and $21.5 million Consolidated Public Improvement Bonds of 2010, Series C. Concurrently, Moody's has affirmed the Aa1 rating on the county's $363.2 million in pre-refunding parity debt.

RATINGS RATIONALE

The bonds are secured by the county's unlimited ad valorem tax pledge. The Aa1 rating reflects the county's sound financial position, supported by comprehensive fiscal policies, satisfactory available fund balance, and an affordable debt position. The rating also considers the rapid growth of the county's largely-residential tax base during recent years, which has moderated with the recession, and the ongoing diversification of the local economy. Approximately $14.8 million in bond proceeds (2010 Series A and B) will refund portions (includes both current and advanced refunding pieces) of the county's series 1997, 2000, 2001 and 2002 bonds for an estimated 5.4% net present value savings or $774,000 within the existing maturity structure. The refundings are contingent on favorably market conditions. The Series 2010 (Series C) bonds will be used to finance projects for public education and school, public works, conservation and various other projects.

SATISFACTORY FINANCIAL FLEXIBILITY MAINTAINED; CONSERVATIVE MANAGEMENT AND POLICIES SUPPORT STABLE OPERATIONS

The county's sound financial position is supported by comprehensive fiscal policies and planning, proactive management, and satisfactory revenue-raising capacity. Local law requires management to appropriate surplus funds in subsequent budgets, so that operating surplus is captured as undesignated fund balance in a base year, then designated for future expenditure in ending fund balance of the following fiscal year, and then appropriated to the General Fund budget in the third year. Despite draws from General Fund balance in recent years in accordance with these requirements, Moody's believes the county retains satisfactory financial flexibility to absorb unanticipated budget variances. To enhance flexibility, the county maintains a Stabilization Fund targeted at 3% of the following year's budget and a Secondary Reserve targeted at 1.5% of the following year's budget, both within General Fund balance. Additionally, the county allocates a portion of operating revenues to fund capital projects on a pay-go basis; these property and income tax receipts ($32.8 million in fiscal 2008, $14.1 million in fiscal 2009) are collected in the Capital Projects Fund but may be transferred to the General Fund to finance operations in the event of a revenue shortfall or unexpected operating need. Financial management practices, including the development of a six-year balanced operating plan and the restriction of one-time revenues (including appropriated fund balance) to fund non-recurring expenditures, further enhance the county's ability to maintain balanced operations.

Following two consecutive operating surpluses, fiscal 2009 ended with a modest $2.9 operating deficit due in large part to economically sensitive revenues underperformance. Management's historically conservative budget assumptions and efforts to contain expenditures helped maintain a sound General Fund balance of approximately 25% of General Fund revenues ($77.3 million). Approximately $8.1 million in budgetary savings enabled the county to limit the use of fund balance to a level well below the $11.3 million as originally appropriated, despite a net $7.3 million shortfall in revenues (largely income tax and recordation tax). Ending fund balance included designations for the 3% Stabilization Fund ($10.7 million) and the 2.1% Secondary Reserve ($6.75 million). When combined with an $8.1 million undesignated portion, available fund balance represented a satisfactory 7.9% of fiscal 2009 revenues. Based on unaudited results, the county ended fiscal 2010 with another modest draw on reserves (approximately $2.1 million). Overall management achieved approximately $6.9 million of expenditure savings which only partially offset the original budget appropriation of $14.9 million due in part to revenue underperformance. Although the estimated total General Fund balance is expected to end with a still strong $75.3 million (23% of revenues), the Unreserved portion of the fund is expected to decline by $6.87 million partially related to a $4.9 million increase in the reserved fund balance.

The fiscal 2011 budget declined by approximately $5.5 million (1.6%) compared to the previous year's budget and appropriates $8.6 million from General Fund balance for one-time expenditures. The income tax rate was maintained at 3.05%, affording revenue-raising capacity up to the state's 3.2% maximum rate. The budget included a slight decrease to projected receipts from income tax (-1.9% or $2 million) but included a similarly sized increase to recordation tax projections (1.1% or $1 million). If economically sensitive revenues were to perform negative to budget, the county's ability and willingness to divert recurring revenues to fund general operations in lieu of pay-go capital projects confirms the importance of this retained financial flexibility, particularly in the current economic environment.

TAXBASE GROWTH EXPECTED TO MODERATE DUE TO RECESSION; FOCUS REMAINS ON MANAGED RESIDENTIAL DEVELOPMENT AND TARGETED ECONOMIC EXPANSION

Located approximately 25 miles northwest of the City of Baltimore (G.O. rated Aa2/stable), Carroll County has experienced an accelerated pace of tax base expansion during recent years, driven largely by the rapid appreciation of residential real estate and new residential construction. The county's tax base has more than doubled since fiscal 2002, increasing to a sizeable $22.1 billion in fiscal 2010, and officials estimate a 4.6% decline in total valuation to $21.05 billion in fiscal 2011. The taxbase decline is related to the overall down economy and real estate market. Residential property serves as a principal factor in tax base expansion; the residential property digest comprises 84% of the real property assessable base and increased 97% in value from fiscal 2004 to fiscal 2009. Approximately 65% of the county's land area is farmland and the county strengthened its Adequate Public Facilities Ordinance (APFO) in fiscal 2005 to establish more rigorous school, utility and public safety adequacy standards in an effort to control rapid residential development. As required by the APFO, the county issues no more than 6,000 residential building permits during any six-year period. Officials report that the revised APFO reduced the number of permits issued annually by roughly 50% between fiscal 2002 and fiscal 2006. Residential permit issuance has declined by an additional 69% since that time (to 224 units in fiscal 2010), compounded by the residential real estate market downturn. Moody's expects weakness in the residential market to continue during the near term, consistent with the region; however, the county's tax base may avoid significant declines given the statewide requirement to phase-in reassessment-related tax base growth over a three-year period, effectively smoothing the impact of any property devaluation. Further, the county's homestead tax credit limits the county's ability to capture homestead appreciation for annual tax levy purposes to 5% (down from 7% in fiscal 2010), steady annual growth in the tax levy as pent-up appreciation is added to the tax rolls.

Notwithstanding the role of residential real estate in tax base expansion, the county's commercial and industrial base also continues to demonstrate steady growth trends and diversification. The commercial and industrial tax digest, equal to a combined 10.3% of the assessable base, increased 58% from fiscal 2004 to fiscal 2009. The county's employment base similarly has experienced steady gains during recent years. Long-term growth is expected to be supported by the planned development of 120 acres of industrially-zoned land (one million square feet of space over 10 years), St. John Properties' planned development of a 40-acre mixed-use retail and industrial park, and the ongoing development of the 63-acre Westminster Technology Park. The county's wealth indices approximate state norms and officials report that the county's median income has steadily increased since 2000. August 2010 unemployment of 6.8% is elevated relative to recent years but remains below the 7.6% statewide and 9.5% national levels for the same period.

DEBT BURDEN EXPECTED TO REMAIN AFFORDABLE

Moody's expects the county's overall debt burden to remain manageable, given ongoing tax base growth and dedicated revenue streams to finance capital improvements. The current issuance increases the county's total debt burden to a still moderate 1.7% of full valuation. Approximately 70% of all debt obligations will be retired within 10 years and debt service comprised 10.1% of fiscal 2009 operating expenditures. The county's earmarking of revenue streams for capital projects and the aggressive funding of pay-go capital improvements represent credit strengths. The county designates a minimum 3% of property tax receipts for the capital budget, dedicates 9.1% of local income tax revenue to school construction and debt service, and uses impact fees for school and park construction. Pay-go funding for capital projects averaged $20.1 million annually from fiscal 2000 to fiscal 2005 and has increased to an average $39 million annually since fiscal 2006. Officials report that annual pay-go contributions will return to more historical levels going forward. The county's six-year community investment plan (CIP) projects the need for $158.9 million in bond financing through fiscal 2016, including $13.9 million to be issued during fiscal 2011. All outstanding debt is fixed rate and the county is not party to any derivative agreements.

What could change the rating - UP

-Significant improvement to county socioeconomic levels.

-Significant employment diversification.

What could change the rating - DOWN

- Significant deterioration of reserve or liquidity position.

- Significant increase in direct or overlapping debt burden.

KEY STATISTICS

2009 Population (estimated): 174,951

Fiscal 2010 full valuation: $22.1 billion

Fiscal 2010 full value per capita: $126,158

Unemployment rate (August 2010): 6.8%

1999 Median Family Income: $66,430 (107% of state; 133% of nation)

1999 Per Capita Income: $23,829 (93% of state; 110% of nation)

Overall debt burden: 1.7%

Payout of principal (10 years): 70%

Fiscal 2009 General Fund balance: $77.3 million (23% of estimated revenues)

Fiscal 2010 General Fund balance (unaudited): $75.3 million (22.5% of estimated revenues)

Post-sale parity debt outstanding: $384.7 million

The principal methodology used in rating Carroll (County of) MD was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Jessica A. Tevebaugh
Analyst
Public Finance Group
Moody's Investors Service

Lauren Von Bargen
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa1 RATING TO CARROLL COUNTY'S (MD) $36.3 MILLION G.O. BONDS OF 2010 (CONSISTING OF SERIES A, B, AND C)
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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