Fitch Ratings assigns an ‘AAA’ rating to Howard County, Maryland’s (the county) estimated $100.9 million general obligation (GO) bonds, 2009 series A, consisting of $74.0 million consolidated public improvement bonds, 2009 series A and $26.9 million metropolitan district bonds, 2009 series A. The bonds are scheduled for competitive sale on March 24. In addition, Fitch affirms the county’s $720 million outstanding GOs at ‘AAA’ and the county’s $7.9 million outstanding golf course refunding revenue bonds, 2003 series A, at ‘AA’. The Rating Outlook is Stable.
The ‘AAA’ rating on the GO bonds reflects Howard County’s deep and diverse economy, strong financial management, high wealth indicators, and a moderate debt burden with rapid amortization. The county’s financial position is strong, with ample liquidity, sound general fund reserves above the charter-mandated level, and excellent financial planning. Current and projected tax-supported debt levels are affordable.
The ‘AA’ rating on the golf course refunding revenue bonds is based on Howard County’s obligation to support debt service requirements through a debt service reserve fund (DSRF) makeup mechanism, which is a lesser pledge than its general obligation. Notwithstanding the highly rated county’s support obligation, the bonds are expected to be paid from golf course revenues. The bonds are limited obligations of the county, payable from gross revenues derived from the operation of the county’s Timbers at Troy golf course. In addition, the county has covenanted in the indenture to restore any deficiencies in the debt service reserve fund throughout the life of the bonds. The county’s requirement to restore the DSRF constitutes a general contractual obligation. The $763,423 DSRF is equal to maximum annual debt service (MADS) on the bonds, which occurred in fiscal 2006. To date, the county has not been required to restore any deficiency in the DSRF.
Howard County’s relative affluence, high quality of life, excellent schools, and proximity to both Baltimore and Washington, D.C. have resulted in continued strong demand for housing and related commercial expansion. Repeatedly listed as one of the best places to live in popular magazines, the county controls its growth, limiting new housing units to 1,850 annually and placing 10% of its land under permanent farmland preservation easements. Development is anticipated as a result of recent Base Realignment and Closure Commission recommendations, which will bring Defense Information Systems Agency and other Defense departments’ activities to Fort Meade, in adjacent Anne Arundel County. Assessed valuation growth has been solid, averaging roughly 10% annually since fiscal 2000. Fitch anticipates that the county’s assessment process will shelter it, at least in part, from market declines over the next few fiscal years. County employment remains strong, with the December 2008 unemployment rate of 3.8% comfortably below the state’s 5.5% and the nation’s 7.1%. Wealth and income indicators are high, with per capita income 29% above state and 63% above national averages.
Financial operations and planning are a credit strength, evidenced by healthy reserve levels and overall financial flexibility. Fiscal 2008 ended with an unreserved general fund balance equal to $47.9 million, representing a solid 6.0% of spending. The county maintains a general fund charter reserve equal to 7% of the prior year’s audited expenditures, and a separate designation of approximately $6 million above the charter reserve amount. Additional flexibility stems from the county’s increased pay-as-you-go funding for capital needs and other post-employment benefits. The county expects to end fiscal 2009 on budget, with proactive measures to reduce expenditures projected to offset anticipated revenue declines from income tax and recordation tax receipts.
Debt levels are moderate and are expected to remain so, as a spending affordability advisory committee annually measures debt affordability and operating projections. Inclusive of the current issue, overall net debt will equal $2,848 per capita and 1.7% of market value. Amortization of principal continues to be above average. In addition to ongoing long-term borrowing, the county continues to borrow on a short-term basis to provide for interim financing of the capital improvement program (CIP). A portion of the current issue will redeem approximately $73.4 million of outstanding bond anticipation notes and refinance them on a long-term basis. The fiscal 2009 through 2014 CIP totals $1.7 billion, with roughly half of planned spending for the highly regarded kindergarten through grade 12 school system and the local community college. Tax-supported debt will fund over 70% of the CIP.