Fitch Ratings has affirmed the following Summit County, Ohio (the county) bonds:
--$42.3 million limited tax general obligation (LTGO) bonds series 1999, 2002R, and 2004A at 'AA+'.
--Implied general obligation (GO) at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The LTGO bonds are obligations of the county, to which it has pledged its full faith and credit and its ad valorem tax, subject to the 10-mill limitation.
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: The county's financial profile is characterized by prudent, forward-looking budgeting, high reserve levels, and strong liquidity. The county continues to successfully control spending pressures and maintain budgetary balance within a fairly stagnant revenue environment.
LIMITED REVENUE-RAISING FLEXIBILITY: Strong and conservative financial management offsets continued dependence on economically sensitive sales tax revenues and limited revenue-raising flexibility, which has constrained the county budget for the past several years.
DIVERSE ECONOMIC BASE: The county benefits from growing information, business services, finance, and health and higher education sectors representing a continued diversification away from the area's historically manufacturing-based economy. Unemployment is low and county wealth levels remain comparable to state and national averages.
AFFORDABLE DEBT PROFILE: The county's debt and capital needs remain manageable with above-average amortization. County contributions to state administered plans for pensions and post-employment benefits are affordable.
RATING DIFFERENTIATION: County non-voted property tax rates are at their statutory 10-mill limit, which supports the one-notch rating distinction between the county's implied ULTGO and LTGO ratings.
RATING SENSITIVITIES
STABLE CREDIT PROFILE: The ratings are sensitive to shifts in fundamental credit characteristics, including the county's ability to control and monitor expenditures to meet available revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The county is located in northeastern Ohio and includes the city of Akron (LTGO bonds rated 'AA-'; Stable Outlook by Fitch). The county's population of 541,824 in 2013 is relatively unchanged over the past decade.
STRONG FINANCIAL PROFILE DESPITE CONSTRAINTS
The county consistently exceeds its formal fund balance policy, which calls for fund balance to exceed 17.3% of general fund spending (cash basis). The county posted $49.1 million in unrestricted fund balance in fiscal 2013, a strong 43.5% of spending. Fitch notes an above-average reliance on economically sensitive sales taxes within the general fund, though this revenue source has dramatically outperformed declining property tax revenue in recent years.
The county's ability to raise revenue is limited, with a property tax millage currently at its 10-mill statutory limit and a recent sales tax measure overwhelmingly defeated by voters. Fitch is concerned with this result, as the largest intended use of the new sales tax would have been addressing already-strained operations at the county jail. Fitch believes the county will face challenges in addressing this issue within the constraints of the county's operating budget.
County management has so far successfully responded to its constrained operating environment by addressing expenditures through hiring freezes, retirement incentives, furloughs, and deferred capital projects. Fiscal 2014 general fund performance is forecasted to be balanced through continued careful expenditure management and moderate revenue growth.
The county's fiscal 2015 general fund budget is balanced with a $3.6 million fund balance appropriation, of which $2.6 million will fund a periodic additional payroll period. Fitch believes the county's stable economy, conservative revenue budgeting assumptions, careful expenditure management, and recent trend of budget stability should support sound reserves over the longer term.
STABLE AND DIVERSE TAX BASE
The county's local economy is anchored by the urban hub of Akron and continues to transition away from its historic tire manufacturing roots towards polymer (plastics and related compounds) research and development. Other expanding industries within the county, including healthcare, higher education, finance, and business services, lend breadth and stability to the local economy. The county is also home to a number of corporate headquarters including The Goodyear Tire and Rubber Co. (rated 'B+'; Positive Outlook by Fitch), Bridgestone Americas Tire Operations, FirstEnergy Corp. (rated 'BB+'; Stable Outlook by Fitch), and FirstMerit Corp. (rated 'BBB+'; Stable Outlook by Fitch).
The county's tax base remains fairly stagnant, posting a modest decline in fiscal 2015 following a sexennial revaluation. Fitch believes that management's expectations for slow, stable assessed value (AV) growth going forward are reasonable, as evidenced by the county's slowly recovering housing market and sluggish growth in revenues related to permits and fees.
The county's 4.8% unemployment rate as of September 2014 is below the state and national averages of 5.1% and 5.7%, respectively. Per capita income levels and educational attainment rates are both comparable to national averages.
AFFORDABLE DEBT, PENSION BURDEN
Overall county debt levels are low, both per capita ($1,041) and as a percent of total county market value (1.8%). The county amortizes debt at a rapid pace, with 73.1% of principal retired within 10 years. Future capital needs appear to be manageable, although the recent failed sales tax referendum will require the county to defer, reevaluate, or pass down projects to the county's various subdivisions. Addressing these needs may pose a challenge given the county's constrained operating environment. The county does not anticipate further debt issuance over the near-term.
The county's contributions to the Ohio Public Employees Retirement System (OPERS) are a manageable cost pressure at $23.5 million (6.1% of governmental spending) for fiscal 2013. Using Fitch's more conservative 7% discount rate, OPERS was funded at approximately 72.9% at fiscal year-end 2013. Fitch does not expect material growth in the county's contribution rate over the near-term, given an adequately funded state plan and historically stable contribution rates. The county makes 100% of statutorily required contributions to OPERS.
Other post-employment benefit (OPEB) costs are also administered by the state and charged to the county on a pay-go basis. Total carrying costs, including debt service and costs related to retirement benefits, are fairly low at 10.1% of governmental spending.
Additional information is available at 'www.fitchratings.com'.
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, and Zillow.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=928335
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