Fitch Ratings has affirmed the ‘AAA’ rating on the following obligations for Gwinnett County, Georgia (the county):
–$19.1 million general obligation (GO) bonds;
–$806.3 million water and sewerage authority revenue bonds;
–$89.9 million development authority revenue bonds.
The Rating Outlook is Stable.
A list of individual bond series covered by this rating action commentary is included at the end of the release.
GO bonds are direct and general obligations of the county for which its full faith and credit and unlimited taxing power are pledged. The revenue bonds are secured by county payments under an interlocal agreement with the development authority and a lease agreement with the water and sewerage authority. The county’s obligation under the agreements is absolute and unconditional and secured by a pledge of its full faith and credit and unlimited taxing power. The water and sewerage authority bonds are also secured by a pledge of the net revenues of the utility system.
KEY RATING DRIVERS
STRONG RESERVES: Financial resources remain considerable and in excess of conservative policy requirements.
STABLE OPERATING PERFORMANCE: Careful budgeting and financial monitoring has contributed to a lengthy history of positive operating results. The budget is dominated by property taxes, which are not legally constrained by statutory or charter restrictions.
FAVORABLE DEBT POSITION: Key debt metrics are expected to remain low given the rapid repayment of outstanding obligations and absence of additional issuance plans. General capital needs are largely funded from a voter-approved special purpose local option sales tax (SPLOST).
MANAGEABLE RETIREE LIABILITIES: The county continues to address its manageable pension and other post-employment benefit (OPEB) liabilities in a prudent manner.
PROXIMITY TO ATLANTA: The county participates in the large and diverse Atlanta metropolitan statistical area (MSA) which serves to complement its largely residential tax base. Fitch views key economic and demographic statistics favorably, although the county’s tax base has a history of volatility pressuring the key source of operating revenue.
STRONG CREDIT FUNDAMENTALS: The county’s overall financial strength and limited debt, pension, and OPEB burden combine to limit its exposure to unanticipated budgetary demands over the foreseeable future.
Gwinnett County is located in north central Georgia. The county seat, the city of Lawrenceville, is roughly 35 miles northeast of the city of Atlanta. The county has an estimated 2013 population of 859,304, a considerable increase from the 2000 Census figure of 588,448.
STRONG FUND BALANCE POSITION
The county’s reserve position remains strong with an unrestricted balance in the general fund totaling $134.4 million in 2013 (Dec. 31 year-end) equivalent to 45% of spending. The county maintains a minimum three-month unassigned fund balance in the general fund, which Fitch views as very conservative.
The 2012 general fund balance had stood at $172.1 million or 40% of spending. The nominal decline in reserves is related to the 2013 execution of new service delivery strategy (SDS) agreements for fire and EMS, police, and development and enforcement with the majority of its municipalities. The expenses related to the provision of these services were shifted to new district funds. Additionally, $64 million in reserves was transferred from the general fund to establish three-month reserves for each fund ($51 million), as well as meet other requirements of the SDS settlement with respect to the distribution of motor vehicle taxes and supplemental title ad valorem taxes ($13 million). The reserves held in the district funds are no longer available for general fund use, which may moderately limit overall financial flexibility.
STABLE TO POSITIVE OPERATING RESULTS EXPECTED IN 2014
The 2014 general fund budget appropriated a very modest $742,500 in fund balance. Budgeted revenues of $240.6 million in 2014 are 6.7% below actual 2013 revenue, reflecting the conservative nature of the county’s revenue forecasting. The budget funds $4.2 million for capital and an additional $4.3 million for contingencies. There are no material budgetary variances reported through June (the county reports on its actual performance monthly). Management forecasts balanced results in the worst case at year-end, which appears to Fitch to be reasonable.
TAX BASE VALUATION UP SOLIDLY IN 2014
The county’s tax digest appears to have turned a corner after losing nearly 20% of its value from 2008-2013. The 2014 valuation of $25.4 billion represents an improvement of 7.6% on the year. The county had conservatively assumed 2% growth in the 2014 general fund budget, which is largely funded by property taxes (85% of operating revenue). Neither the tax rate nor levy is subject to a statutory or charter limitation. However, the rate has been relatively stable since the last material increase back in 2009. The county’s tax base is very diverse with no significant concentration risk.
Approximately 90% of the county’s direct debt is supported by revenue of the water and sewer enterprise unit. As such, net debt ratios remain low at $1,426 per capita or 1.8% of market value, while general government debt service is budgeted at just $5.9 million in 2014. The low debt further reflects the history of SPLOST voter support. This has allowed the county to meet its capital needs on a pay-as-you-go basis. Voters approved a three-year SPLOST in November 2013 at a 58% approval rate that the county estimates will generate $453 million in revenue. The county does not anticipate issuing additional tax supported debt at present time.
PRUDENT APPROACH TO FUNDING RETIREE BENEFITS
The county administers a defined benefit pension plan that was closed to new hires effective Jan. 1, 2007. This plan has a reported funded ratio of 83.9% as of Jan. 1, 2014 adjusted by Fitch to 75.6% assuming a 7% rate of return. The Fitch-adjusted unfunded actuarial accrued liability (UAAL) of roughly $260 million equates to less than 0.3% of market value and will be amortized over a closed 13-year period.
The county has made payments in excess of the actuarial required contribution (ARC) for six consecutive years. Its total pension cost in 2013 (inclusive of the defined contribution plan for employees hired after Jan. 1, 2007) was $66.8 million or approximately 11% of governmental spending. The ARC would have been slightly more than 6% of spending.
Retiree health benefits are provided by a county plan for which an irrevocable trust has been established, also effective Jan. 1, 2007. The trust reports an actuarial value of assets of $106.2 million as of Jan. 1, 2014 for a 59.9% funded ratio. This is unusually high relative to other U.S. local governments. The county’s OPEB benefits are capped at a specific monthly limit.
PARTICIPATION IN ATLANTA METRO ECONOMY
The county’s close proximity to downtown Atlanta is viewed favorably. Atlanta serves as the core of the ninth largest employment base in the country with nearly 2.5 million non-farm jobs in 2014. The economy is diverse with major employers spanning numerous industries. Additionally, the MSA is home to a significant number of Fortune 500 companies including Delta Airlines, Coca-Cola, Kroger, AT&T, Publix Supermarkets, Cisco, Home Depot, Cox Enterprises, and SunTrust Banks.
The county serves as more of a suburb to Atlanta’s business core, with residential property accounting for nearly 60% of its tax base. Gwinnett County Public Schools is the largest employer in the county (19,813) with the largest private sector employers Publix (3,491) and Wal-Mart (2,780). The county’s unemployment rate tends to register below the MSA, the state, and the nation. Median household income registers 125% of the state and 117% of the U.S.
The following is a list of Fitch-rated bonds covered by the press release:
Gwinnett County, GA
–General obligation refunding bonds, series 2012.
Gwinnett County Water & Sewerage Authority
–Revenue refunding bonds, series 2011, 2009, 2008, 2006, and 2005.
Gwinnett County Water & Sewerage Authority
–Taxable revenue bonds (Recovery Zone Economic Development Bonds), series 2009.
Gwinnett County Development Authority (Civic & Cultural Expansion Project)
–Revenue refunding bonds, series 2010.
Gwinnett County Development Authority (Stadium Project)
–Taxable revenue bonds, series 2008.
Gwinnett County Development Authority (Arena Parking Deck Project – Civic & Cultural Center Expansion)
–Revenue bonds, series 2007.
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, and IHS Global Insight.
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
U.S. Local Government Tax-Supported Rating Criteria