July 16, 2012 / 4:58 PM / 5 years ago

TEXT-Fitch rates Spotsylvania County, Va. GOs 'AA+'

July 16 - Fitch Ratings assigns an 'AA+' to the following Spotsylvania
County, Virginia's (the county) general obligation (GO) bonds:

--Approximately $14.4 million GO public improvement bonds, series 2012A
(tax-exempt);
--$1.2 million GO qualified energy conservation bonds, series 2012B (taxable).

The bonds will be sold via competitive sale on or about July 26. Proceeds will
be used to finance certain capital projects and to refinance two series of
outstanding literary loans.

In addition, Fitch affirms the following ratings:

--$214.8 million Spotsylvania County (the county) general obligation (GO) bonds
at 'AA+';
--$82.9 million Economic Development Authority of the county (the EDA) public
facilities revenue bonds, series 2005, 2011 and 2012 at 'AA';
--$17.5 million Industrial Development Authority of the county (the IDA) public
facilities revenue bonds, series 2004 at 'AA'.

The Rating Outlook is Stable.

SECURITY
The GO bonds are backed by the county's full faith and credit and unlimited ad
valorem taxing ability.

The EDA and IDA bonds constitute lease revenue bonds, secured by annual payments
to be made by the county, with such payments assigned to the trustee. The
county's payments are subject to annual appropriation. The dependent county
school board is posting school facilities and a government building to the EDA
and IDA bonds, respectively, as collateral.

RATING RATIONALE

SOLID FINANCIAL RESULTS: Financial performance is strong, as evidenced by the
county's consistent maintenance of reserves above prudent policy levels. Results
have also shown some improvement in recent years, with the county posting
moderate surpluses for fiscals 2010 and 2011.

ECONOMY TIED TO REGIONAL CENTERS: The county's local economy relies on the
nearby job markets of Washington, D.C. and Richmond, where a large proportion of
county residents commute for employment. Defense contracting and healthcare
sectors continue to develop in the county, aided by growth initiatives and
positive workforce characteristics. Economic indicators are positive.

LOW-RISK DEBT PROFILE: Debt levels are moderately low and amortization of
outstanding principal is rapid. Future capital needs appear manageable. The
county demonstrates a firm commitment to pay-go financing.

LEASE REVENUE RATING: The rating on the lease revenue bonds reflects the
county's underlying credit quality, its demonstrated experience with
appropriation-backed debt obligations, the essentiality of the projects being
financed, and the satisfactory legal provisions of these lease financings.

CREDIT SUMMARY

STRONG RESERVE LEVELS

Unrestricted fund balance (the sum of assigned, unassigned and committed under
GASB 54) levels have historically remained sound and well above the county's
unassigned fund balance policy, which stipulates that the county maintain an
unassigned fund balance equal to at least 10% of general fund operating
revenues. In practice, the county has maintained its Fiscal Stability Reserve, a
designated portion of the unassigned fund balance, equal to 10% of operating
revenues. The county has traditionally used fund balance in excess of its 10%
policy for capital expenditures.

Fiscal 2011 ended with an operating surplus after transfers of $6.2 million
(2.9% of spending) for a general fund unrestricted fund balance (the sum of
assigned, unassigned and committed fund balances under GASB 54) of $54.7
million, equal to a strong 25.4% of spending. Fitch believes that the county
retains flexibility to further reduce expenditures if necessary, given that the
reductions implemented to date have been mild. The county also has the
flexibility to raise revenues as its $0.86 millage rate per $100 assessed value
(AV) remains regionally competitive. Liquidity is sound when Fitch adjusts for
property tax revenues that have been deferred.

FISCALS 2012 AND 2013 ESTIMATES AND BUDGET

The fiscal 2012 budget represents a 4.7% increase over that of fiscal 2011 due
to increased capital and operational spending for new judicial and public safety
buildings, as well as a 1.5% cost of living increase for county employees. There
was no change to tax rates or fees. Management reports that for the first three
quarters of fiscal 2012 revenues are outpacing budgeted projections due to
over-performance of personal property tax receipts while expenses are performing
as expected. Though the county appropriated $680,000 of fund balance for
one-time expenses, projections for fiscal year end show a modest $734,000
operating surplus after transfers (0.3% of projected spending).

The fiscal 2013 budget is 10.5% larger than fiscal 2012 as a result of a large
bullet debt service payment and increased fire/rescue staffing. The real
property millage rate will increase to a moderate $0.88 per $100 AV, which is
below the revenue neutral rate of $0.90; the personal property millage rate will
also increase from $6.26 to $6.37, which is less than the equalized rate of
$6.65. A fund balance appropriation of $11.7 million (4.8% of budgeted spending)
will finance school and county capital projects ($8.4 million) and other
one-time expenses. Fitch believes reserve levels will remain ample despite the
proposed draw.

PROXIMITY TO WASHINGTON, D.C. AND RICHMOND

Strategically located on the I-95 corridor, Spotsylvania County functions as a
bedroom community for nearby Richmond, VA and Washington, D.C. Approximately
one-half of county residents commute to these labor markets. The number of
commuters has fallen slightly in the recent past, due in part to efforts by
county management to foster local employment opportunities.

Economic indicators for the county are positive. Per capita income levels are
14% higher than those of the nation, and median household income levels are 50%
higher. As has been the historical norm, the county's unemployment rate (4.9% as
of March 2012) remains below that of the state and nation. Fitch also notes that
average annual growth of the county's employment base (2.7%) over the past
decade has exceeded that of the state and nation.

CONTINUED DIVERSIFICATION OF LOCAL ECONOMY

The county has experienced growth in the defense contracting and healthcare
sectors through economic development initiatives supported by infrastructure
improvements, such as the construction of a link to a soon-to-be-built Virginia
Railway Express (VRE) station located in the county. The county's third largest
private employer, defense contractor A-T Solutions, moved to the county in 2010
and was ranked number 14 on the Washington Business Journal's list of 50 Fastest
Growing Companies in the Washington metropolitan statistical area for 2011. The
county's second largest private employer, Spotsylvania Regional Medical Center,
is catalyzing development of the county's healthcare sector. Since its opening
in June 2010, 31 new healthcare establishments have developed in the county.

Management expects the county's tax base to rebound slowly with growth between
1-3% from an appreciable year-over-year decline of 19.5% in fiscal 2010. Fitch
considers this estimate realistic given calendar 2011's 1% total AV growth and
2012's 3% decline. Countywide housing data through April 2012 shows
year-over-year improvement, with an increase in median sales price (up 15%) and
a decrease in the average number of days on the market (down 14%).

MODERATELY LOW DEBT LEVELS

The county's debt profile is moderately low, with net overall debt equal to
$2,707 per capita and 2.3% of market value (MV). Debt service as a percentage of
general fund spending in fiscal 2011 was high at 18.2%, though still compliant
with the county's policy as a percentage of governmental fund spending.
Amortization is above average with over 65% of outstanding principal retired in
10 years.

The county's capital needs appear manageable. The fiscal 2013-2017 capital
improvement program (CIP) totals $144 million (a low 1% of MV) and represents a
significant decrease from the fiscal 2011-2015 CIP ($259 million) due to the
completion of several large projects. Government facility projects represent the
bulk of the 2013-2017 CIP, followed by transportation ($32 million) projects.
Near-term school needs are relatively minor as school facilities currently have
13% excess capacity. Approximately 61% of the CIP is funded through debt, with a
sizeable portion funded from pay-go sources.

Fitch views the county's firm commitment to pay-go financing as a credit
positive. The county has been steadily working towards fulfillment of its policy
to transfer 5% of general fund revenues to the capital projects fund, increasing
transfers by a quarter-percent every year until the policy is achieved. Towards
this end, the county increased taxes by $0.02 per $100 AV in fiscal 2010. Pay-go
transfers are projected to be 2% of general fund revenues ($4.5 million) for
fiscal 2012 and 2.25% for fiscal 2013.

LOW OTHER LONG-TERM LIABILITIES

Pension and other post employment benefit (OPEB) contributions do not stress
financial operations. County employees participate in the state-administered
Virginia Retirement System, and the county makes annual payments as determined
by the state that equal its annual required contribution. The county will phase
in the newly-required 5% employee contribution rate over a five-year term and
plans to offset employee contributions with incremental pay increases beginning
in fiscal 2013. OPEB is currently funded on a pay-go basis, although the county
plans to begin funding an OPEB trust when economic conditions allow. Combined
pension and OPEB contributions for fiscal 2011 totaled $5.8 million or a
manageable 2.6% of spending.

Fitch Ratings has withdrawn its ratings on the following bonds due to
prerefunding activity:

--Spotsylvania County Economic Development Authority (VA) (Spotsylvania School
Facilities Project) public facility revenues bonds series 2003 (all maturities);
--Spotsylvania County Economic Development Authority (VA) (Spotsylvania School
Facilities Project) public facility revenues bonds series 2003B (prerefunded
maturities only).

The updated rating history for the above bonds is now reflected on Fitch's web
site at 'www.fitchratings.com'.

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.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria

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