NEW YORK - (Business Wire) Fitch Ratings assigns an 'AAA' rating to Montgomery County, Maryland's (the county) estimated $387.4 million general obligation (GO) bonds, consisting of: --$78 million consolidated public improvement bonds of 2009, series A;
--$232 million consolidated public improvement bonds of 2009, series B;
--$77.4 million consolidated public improvement refunding bonds of 2009, series A.
The county expects to issue series A and the refunding bonds as tax-exempt bonds. However, series B may be sold as tax-exempt bonds or as taxable Build America Bonds, at the option of the county. All series are scheduled to price via competitive sale on Nov. 3, 2009. The $310 million of series A and series B bonds will redeem an equivalent amount of commercial paper, thereby providing permanent financing for county capital projects.
Fitch also affirms the following outstanding ratings:
Montgomery County, Maryland
--$1.6 billion GO bonds at 'AAA';
--$30.4 million certificates of participation (Equipment Acquisition Program) at 'AA+';
--$35 million lease obligations (Metrorail Garage Projects) at 'AA'.
Maryland Economic Development Corporation
--$35.1 million lease revenue bonds at 'AA+'.
Montgomery County Revenue Authority
--$15.2 million lease obligations (Germantown Indoor Swim Center Project) at 'AA+';
--$11.3 million lease obligations (Conference Center Project) at 'AA'.
Maryland-National Capital Park and Planning Commission (M-NCPPC)
--$42.1 million Montgomery County GOs at 'AAA'.
The Rating Outlook is Stable.
The 'AAA' rating reflects Montgomery County's broad and diverse economy, healthy financial flexibility and reserve levels, and manageable debt levels with rapid amortization. While the economy has traditionally been driven by the extensive presence of the U.S. government, opportunities in biotechnology and professional and business services have resulted in continued diversification in the county. The county has demonstrated prudent fiscal management through strong financial planning and a commitment to reducing growth in out-year budgets. Now facing declining revenues and rising future costs, the county's ability to maintain solid reserves and structural balance will be a key rating driver.
Bordering Washington, D.C. and northern Virginia, Montgomery County's wealthy suburban economy is fueled by a large U.S. government presence, with depth and diversity added by the strong biotechnology sector, which continues to expand. Montgomery County remains focused on developing its four central business districts. The county's unemployment rate has been well below state and national averages since at least 1998, with the September 2009 rate of 5.3% significantly below the state's 7.1% and the nation's 9.5% (rates are not seasonally adjusted). Various economic indexes have consistently ranked the county, which had an estimated 2008 population of 950,680, among the wealthiest in the nation.
The county ended fiscal 2008 with healthy reserves, despite a $143.9 million decrease in fund balance; the unreserved fund balance of $164.3 million combined with the county's separate revenue stabilization fund (RSF) of $119.6 million, represented 10.2% of general fund spending. Shortly after adopting a balanced fiscal 2009 budget, county officials made steep downward revenue revisions, adjusting to the rapidly changing economic climate. A savings plan was also implemented to offset weakening revenues, although preliminary estimates report a $68 million decline in fund balance. The county maintains additional financial flexibility in the RSF, which has not been used to date; the RSF balance plus estimated unreserved general fund balances equal roughly 8% of fiscal 2009 spending. The fiscal 2010 budget was balanced with a combination of revenue enhancements and expenditure reductions, which included successful labor negotiations on wages and the elimination of roughly 400 positions. The fiscal 2010 budget also includes a one-year revision to the reserve policy, lowering the required percentage of reserved revenues to 5% from 6% of total resources. Fitch will continue to monitor the county's financial flexibility and steps taken to maintain structural balance in the pressured economic environment.
The real estate market across the Washington, D.C. metro area continues to experience pressure, with a rising number of foreclosures and projected home price declines over the next five years. Montgomery County has seen sizable increases in foreclosure activity over the past year, and a decrease in certain related revenues. However, important factors such as triennial property assessments and the homestead property tax cap, which limits taxable AV growth to 10%, are likely to somewhat mitigate fiscal pressure from the housing market over the longer-term.
Debt levels are moderate, and amortization remains rapid with 68% of outstanding principal retiring within 10 years. The fiscal years 2009-2014 amended capital improvement plan totals $3.7 billion and allocates substantial funding for schools (35%), transportation (27%), and public safety (9%). Major sources of funding include general obligation bonds and intergovernmental revenue.
Additional information is available at www.fitchratings.com.
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Fitch Ratings, New York
Alexandra Knight, +1-212-908-9181
Barbara Ruth Rosenberg, +1-212-908-0731
Media Relations:
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
