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Fitch Rates Carroll County, MD's $38.7MM GOs 'AAA'; Outlook Stable

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

--$38.695 million consolidated public improvement and refunding bonds of 2012.

The proceeds of the bonds will be used to refund a portion of the county's consolidated public improvement bonds of 2005 and 2006 and finance a portion of the costs of various capital projects. The bonds will be offered by the county at a competitive sale on Nov. 8, 2012.

In addition, Fitch affirms the following rating:

--$296.47 million in outstanding county GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county for which its full faith and unlimited taxing power are pledged.

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 solid reserve levels.

STABLE ECOOMY: The economy is somewhat limited. Low unemployment reflects of the county's close proximity to major employment centers.

LOW DEBT BURDEN: The county's debt burden is expected to remain low, given its manageable capital needs.

CREDIT PROFILE

STRONG FISCAL MANAGEMENT

Despite sluggish revenue growth over the past several years, the county has maintained healthy reserve levels guided by prudent policies and long-term planning. Management has reduced capital spending, reduced staff by 13%, and eliminated salary increases.

Fiscal 2011 ended with a net operating surplus of $6.9 million or 2% of spending and transfers out. The unrestricted fund balance (the sum of the assigned, committed, and unassigned fund balance under Governmental Accounting Standards Board 54) at year-end totaled $46.8 million or 13.3% of general fund spending.

POSITIVE OPERATING RESULTS EXPECTED FOR FISCAL YEAR-END 2012

The fiscal 2012 budget was adopted with an $8 million unassigned general fund balance appropriation and a 2 cent reduction in the property tax rate. The county is required by its charter to appropriate the unassigned fund balance as a revenue item in the second subsequent fiscal period. Unaudited results reflect an operating surplus after transfers of approximately $12.6 million due to positive budget variances.

Income tax revenue came in 7% over budget, reflecting positive changes in economic conditions and over-distribution of payment from the state. Spending is projected to show a 1% positive variance, which is equal to the reserve for contingencies.

The unrestricted fund balance is expected to increase to $55.6 million or 15.7% of expenditures, including an $18.4 million stabilization reserve. At 7%, the reserve is in compliance with the county's policy of maintaining a committed balance of 5% of the following years adopted general fund. The assigned balance includes $19.9 million set aside for appropriations in fiscal 2013. The unassigned fund balance of $14.8 million is set aside for appropriation in fiscal 2014.

The fiscal 2013 budget was adopted with a $16.8 million unassigned general fund balance appropriation, a 1 cent reduction in property tax rate and a 1% contingency equal to approximately $3 million. The county has conservatively budgeted fiscal 2013 income tax receipts at 1.5% below fiscal 2012 actuals, taking the over-payment by the state into account. Fitch believes the county will continue to maintain healthy reserve levels despite the sizable fund balance appropriation as the county historically outperforms budget.

SIGNIFICANT REMAINING FINANCIAL FLEXIBILTY

At $1.018 per $100 assessed value in fiscal 2013 the county's property tax rate is the sixth highest in the state but competitive within the northern Maryland area. The property tax rate and levy are not subject to limitation. The county's income tax rate (3.05%) is competitive and below the statutory cap of 3.20%. Increasing the income tax rate to the cap would generate an additional $5 million or 1.5% of 2012 spending, although no such increase is presently contemplated. The county has continued to fund capital projects through pay-go to reduce long-term borrowing needs.

RESIDENTIAL ECONOMY WITHIN THE BALTIMORE METRO AREA

Carroll County, located in north-central Maryland, covers 452 square miles and is within the Baltimore Metropolitan Area. The county serves as a bedroom community with approximately 55.1% of residents commuting to work centers outside of the county. However, the local economy contains a mix of manufacturing, industrial, service, and agricultural businesses. Examples of employers in the county include Random House, General Dynamics Robotic Systems, and Jos. A. Bank Clothiers. The county has 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 6.5% for August 2012 has improved modestly from a year prior and is comfortably below the Baltimore-Towson metro, state, and national averages. Median household income is strong at 116% of the state average and 157% of the national average.

Like all Maryland municipalities, the county benefits from a triennial assessment practice which smoothes annual volatility in tax base performance. The county adopted a conservative homestead percentage of 105%, which means that assessments on certain owner occupied residential property may not increase by more than 5% in any given year (growth in excess of 5% is credited, or banked, and can be used to offset future tax base declines).

Over the past three years the county's taxable assessed value has declined by a cumulative 15.4%. The county is projecting a slight decline in 2014 and modest growth in 2015. The remaining homestead credit is limited, offering approximately $1 million against additional declines in property value.

FAVORABLE DEBT PROFILE

Overall debt levels are low at roughly $2,242 per capita and 1.8% of market value, and amortization is rapid at 68.3% in 10 years. The county's fiscal years 2013 - 2018 capital improvement plan totals just $338.5 million of which the county expects to issue approximately $167.3 million in general obligation bonds, which is roughly equal to the amount of debt repaid during this period. The county does have an aggressive pay-go program thatfunds 31% of the plan.

Major projects include $25.7 million to transition the 911 radio system to digital, $77.6 million for road preservation and $83 million for land preservation. Debt service costs accounted for a manageable 12% of fiscal 2012 spending; however, county management's goal is to reduce outstanding debt by 11% by fiscal 2018.

MODEST PENSION AND OPEB COSTS

Long-term liabilities related to employment benefits are not expected to pressure future operations. The county provides pension benefits to its employees through the county employee pension plan and to police officers through the county certified law officers' pension plan. In fiscal 2012, the county contributed 122% and 130% of the annual required contribution (ARC) respectively, which accounted for 1% of spending. Pension costs for county employees are expected to remain stable.

Beginning fiscal 2013, a portion of teachers' pension costs will be shifted from the state to local governments over a four-year phase-in process. The state is expected to offset the majority of the costs with increases in various revenue streams such as income tax, indemnity mortgage recordation tax and local income reserve relief. While the state has estimated the net cost to the county at $1.6 million, the county was conservative and did not budget for receipt of any offsetting revenues to offset the $4 million in additional costs.

The county also provides other post-employment benefits (OPEB) to its retirees. During fiscal 2012 the county contributed $7.85 million (2.4% of spending) of which $3.35 million was the pay-go amount. The remainder went to a trust that has a current balance of $29.9 million or 15% of the OPEB liability at year-end 2012. The county plans to increase its annual pre-funding by $250,000 annually until the trust is fully funded.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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, Maryland Department of Labor, Licensing and Regulation, Real Estate Business Intelligence, and Maryland Department of Planning.

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

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Fitch Ratings
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Source: Fitch Ratings