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MOODY'S ASSIGNS Aaa TO VPSA'S $48.2 MILLION SPECIAL OBLIGATION SCHOOL FINANCING BONDS ISSUED ON BEHALF OF PRINCE WILLIAM COUNTY

05 Jul 2011

AFFIRMS Aaa RATING AND STABLE OUTLOOK ON $784.3 OF PRINCE WILLIAM COUNTY'S OUTSTANDING G.O. DEBT

Prince William (County of) VA
County
VA

Moody's Rating

ISSUE

RATING

Special Obligation School Financing Bonds

Aaa

  Sale Amount

$48,235,000

  Expected Sale Date

07/19/11

  Rating Description

Special Obligation School Financing Bonds, Prince William County Series 2011

 

Opinion

NEW YORK, Jul 5, 2011 -- Moody's Investors Service has assigned a Aaa rating and stable outlook to the Virginia Public School Authority's $48.2 million Special Obligation School Financing bonds, Prince William County Series 2011. Concurrently, Moody's has affirmed the Aaa rating and stable outlook on Prince William County's $784.3 million in outstanding general obligation debt, the Aa1 rating assigned to roughly $98 million in outstanding lease revenue bonds and certificates of participation, the Aa2 rating assigned to $13.5 million in moral obligation lease revenue bonds issued by the Prince William County Park Authority, and the Aa2 rating assigned to $8 million in outstanding lease revenue bonds issued through the Prince William County Industrial Development Authority.

SUMMARY RATING RATIONALE

The current issue is solely secured by debt service payments made by the county to which the county has pledged its full faith and credit. Proceeds of the issue will purchase Prince William's local bonds, which in turn fund various school capital improvement projects including the construction and renovation of multiple school buildings, as well as a new bus parking lot. Affirmation of the county's Aaa rating reflects the county's sizable, wealthy tax base despite the recent contraction, strong financial flexibility supported by effective management and ample reserve levels, and manageable debt burden. The lease revenue and COP ratings incorporate the county's strong long-term credit characteristics, as well as the risk of non-appropriation. In addition, the Aa1 lease revenue and COP ratings reflect the essential nature of pledged assets, while the Aa2 lease revenue rating reflects the non-essential nature of related pledged assets. The Aa2 moral obligation rating reflects the county's demonstrated commitment to funding park operations and debt service through continued operating subsidies as a result of identifying parks and recreation as an essential component of county services, as well as the high long-term credit quality of the county. The outlook for Prince William County remains stable.

STRENGTHS:

- Sizable tax base

- Strong demographic profile

- Substantial military and educational presence

CHALLENGES:

- Continued contraction in tax base

- Above-average debt burden

NO ADVANCE TRANSFER OF COUNTY FUNDS

Under the Resolution, the VPSA will apply proceeds of the current issue to purchase Prince William County's bonds. On each principal and interest due date, the county will deposit debt service with the Authority which will promptly withdraw the funds to pay bondholders. Although county payments are made one day in advance of debt service payment dates, creating a degree of risk, with Prince William's high credit quality and the essentiality of the funded projects, Moody's expects all transfers will be made in a timely fashion. In addition, the Virginia State Intercept Provision provides an additional mechanism for the application of overdue debt service by the General Assembly to the county.

FAVORABLY LOCATED TAX BASE WITH LONG-TERM GROWTH POTENTIAL DESPITE RECENT DECLINES IN ASSESSED VALUES

Responding to regional and national economic pressures, development in the county's sizeable, wealthy tax base has slowed dramatically, and overall valuations have dropped resulting in sizeable assessed valuation contraction. Prince William's 2010 assessed valuation of $39.3 billion reflects declines of 24.9% and 1.8%, respectively, in 2009 and 2010, reflecting weakening in both residential and commercial sectors. Rapid market value appreciation and record residential building activity drove impressive double-digit annual growth through 2007 as new residents flocked to relatively more-affordable properties in this outer suburb of Washington D.C (G.O. rated Aa2/stable outlook). Positively, Moody's believes that Prince William County's efforts to diversify the economy and resulting commercial development will partially offset the impacts of the region-wide real estate downturn. The county has announced 315 new projects, which are expected to generate in excess of 3,602 new jobs and $803 million in capital investment in the medium term. Industries targeted for significant expansion include life sciences and data storage, as well as the defense-related sector, as Quantico Marine Base is located within the county. Over the past five years the county has added 4,666 new jobs, and the county's 4.9% unemployment level as of April 2011 remains below commonwealth and national averages of 5.8% and 8.7%, respectively. Demographics show high resident wealth, with per capita income at approximately 107% of the state level and 79% of the very-high Northern Virginia average. With the county's proactive efforts to promote and diversify its tax base and resulting commercial development, Moody's believes Prince William's economy remains well positioned for long term growth.

FINANCIAL POSITION EXPECTED TO REMAIN STRONG

Moody's anticipates that the experienced management team's history of prudent fiscal management will ensure maintenance of strong fiscal flexibility, despite tax base contraction. The county added to General Fund balance in 11 of the past 13 fiscal years. The only reductions occurred in fiscal 2006 and 2008 when the county recorded minor fund balance reductions of $3 and 8 million, respectively, largely due to capital spending. Additionally, the county maintains its undesignated general fund balance goal of 7.5% of the operating budget. The county returned to positive operations in fiscal 2009 despite modest revenue shortfalls in sales and communications taxes. Contributing to the $37 million surplus were a $4.8 million favorable revenue variance and $33 million in unspent expenditure appropriations, replenishing the General Fund balance to $168 million, a healthy 18.5% of General Fund revenues.

Although property tax rates had dropped in the earlier part of the decade, the fiscal 2008 budget included the county's first property tax rate increase in over a decade, raising the rate to $0.787 from $0.758 per $100 assessed value. As property values dropped further, the county raised property tax rates gradually to $1.212 in fiscal 2010, with a modest additional increase to $1.236 adopted for fiscal 2011. Since fiscal 2007, $143 million in capital and operating costs have been trimmed from annual operating budgets to maintain structural balance and preserve long-term financial flexibility. With the help of these tax rate increases and expenditure cuts, the county was able to end fiscal 2010 with an operating surplus of approximately $7 million, prior to transfers that can mostly be attributed to capital projects. Overall, General Fund balance decreased by $4 million to $168.9 million or a still healthy 19.4% of General Fund revenues. In addition, the county also continued to maintain its undesignated General Fund balance at 7.5% of the operating budget. While expenditures were $26 million under-budget due to the county's continued effort of identifying areas of potential cost savings, revenues out-performed budgeted figures by over $6 million, as a result of the positive performance of both sales and BPOL taxes.

Preliminary fiscal 2011 results project a $37 million operating surplus increasing General Fund balance to $205.9 million or a solid 28.8% of General Fund revenues. This surplus is the result continued expenditure savings, as well as positive revenue performance related to both property and sales taxes. In addition, the county maintains a revenue stabilization fund (designated in General Fund balance) with a minimum targets of 1% of General Fund revenue. This reserve may be used to cover unexpected declines in General Fund revenue which are greater than 3% of the adopted budget, although any draw must be fully replenished within five years. Although draws on the reserve have been made in previous years, roughly $18.1 million has been added to the fund since fiscal 2006. The reserve's balance is projected at $29.7 million at fiscal 2011 year-end, representing 3.7% of General Fund revenue.

The fiscal 2012 budget represents 5.5% increase from the fiscal 2011. While the budget includes a $0.032 decrease in the property tax rate, the county expects to collect $36.5 million in additional revenue as anticipated assessment growth is expected to offset the rate decline. The budget also includes the county's first wage increase since fiscal 2009, as well as $1.2 million savings resulting from legislative change requiring employee contributions to the state pension system. The use of multi-year forecasting tools and frequent budgetary monitoring are indicative of the county's careful financial management practices, and Moody's expects continued financial stability despite current economic uncertainties.

MODERATE DEBT BURDEN REFLECTS CONSERVATIVE DEBT POLICIES

The county has adopted comprehensive debt policies which are a key factor in supporting Prince William's strong long-term credit profile. Direct debt burden, at 2.2% of full valuation, remains manageable due to average amortization and careful debt planning. Amortization of principal is average with about 68.1% of general obligation debt retired within 10 years. Moody's expects the county's debt burden to remain manageable throughout the implementation of its $1 billion, 2012-2017 capital improvement plan, 66% of which is expected to be debt-financed. The county maintains conservative debt management practices in order to ensure that debt remains manageable as a percentage of annual revenues (under 10%) and that debt burden remains under 3% of assessed value. The majority of the six-year CIP will go to education (67%) and transportation (16%) projects.

The county's existing debt portfolio contains one variable rate obligation, consisting of a $5.5 million certificate of participation that was issued to fund a detention center. This obligation is backed by a Letter of Credit from Wells Fargo Bank (Long-term rating Aa2/rating under review), which expires on August 1, 2011. The county plans to pay off the remaining debt at the end of this term. Given that this variable rate obligation only represents 0.5% of the county's overall debt, Moody's believes the county's interest rate exposure is manageable. Prince William does not have any swap agreements.

OUTLOOK

The outlook remains stable for Prince William County and reflects Moody's expectation that the county will continue to maintain its long-term financial strength and flexibility, despite declining tax base valuations, due to the strength and stability of the local economy which includes government, military, higher education and related facilities, an effective and conservative approach to management and a favorable debt profile.

WHAT COULD MAKE THE RATING GO DOWN:

- Significant decline in reserves

- Further erosion of assessed valuation

- Closure or contraction of major military or other institutional employers

- Substantial increase in debt burden

KEY STATISTICS

2010 population: 402,002 (+43.2% since 2000)

2010 full valuation: $47.2 billion

Full valuation per capita: $117,294

Direct debt burden: 2.2%

Payout of tax-supported debt (10 years): 68.1%

Fiscal 2010 General Fund balance: $168.9 million (19.4% of General Fund revenues)

Fiscal 2010 Undesignated General Fund balance: $63.9 million (7.5% of General Fund revenues)

1999 County median family income: $71,622 (132% of VA, 143% of US)

1999 County per capita income: $25,614 (107% of VA, 119% of US)

Unemployment, April 2011: 4.9% (5.8% VA, 8.7% US)

Long-term debt outstanding, including current issue: approximately $1.02 billion

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments, published in October 2009.

REGULATORY DISCLOSURES

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

Jennifer Rinaca
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
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, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aaa TO VPSA'S $48.2 MILLION SPECIAL OBLIGATION SCHOOL FINANCING BONDS ISSUED ON BEHALF OF PRINCE WILLIAM COUNTY
No Related Data.
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