Fitch Affirms York County, SC's $49MM GOs at 'AA'; Outlook Stable

Fitch Ratings has affirmed the following rating for York County, South Carolina (the county):

--$48.6 million outstanding general obligation (GO) bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county, secured by the county's full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE, AMPLE RESERVES: Consecutive years of operating surpluses have allowed the county to maintain strong reserve levels. Conservative budgeting offsets the revenue limitation from millage increase restrictions.

MODERATE DEBT AND RAPID AMORTIZATION: Overall debt levels are moderate and amortization is rapid. The county has no debt plans for the next two years, with issuance expected thereafter for projects in a capital plan currently being formulated. Pension and other post-employment benefits (OPEB) obligations do not pressure the debt profile presently.

TAX BASE CONCENTRATION: Taxpayer concentration exists in the electric utilities that jointly own the Catawba Nuclear Station (Catawba) in the northern part of the county.

IMPROVING ECONOMIC PROFILE: Trade and manufacturing continue to dominate the local economy, although new private sector investment continues in the county. Demographics exceed state averages and generally mirror national averages.

RATING SENSITIVITIES

The rating is sensitive to shifts in the county's financial profile and economic activity. Continued economic diversification and continued positive financial performance could lead to positive rating action over the near to medium term.

CREDIT PROFILE

The county is located along the northern border of the state, approximately 35 miles outside of Charlotte, NC (GO bonds rated 'AAA' with a Stable Outlook by Fitch) along interstate 77. The county has experienced very strong annual population growth of 5.2% over the past 10 years; the current population is roughly 230,000.

DIVERSIFYING TRADE-BASED ECONOMY

The county's central location along the Atlantic seaboard, its competitive cost of business and labor, and its proximity to transportation infrastructure in Charlotte have long supported a sizeable trade sector. Economic development continues at a healthy pace, with $350 million and over 2,000 new jobs anticipated from projects initiated in the past two years (per the County Office of Economic Development). The trade sector and manufacturing continue to dominate the local employment base at 20.5% and 8.1% of the total, respectively; recent investment by web-based and tech firms support modest diversification.

Employment growth has remained strong over the past several years. The county's employment base expanded a total of 7.4% between 2011 and 2013, and the October 2013 unemployment rate of 7.4% fell from 10.5% the prior year--although it remained slightly above those of both the state (7.2%) and the U.S. (7%). The county's unemployment rate declined as a result of both labor force contraction and job growth over the past two years.

Wells Fargo Home Mortgage remains the county's largest private employer with over 2,300 employees. Local school districts, hospitals and the Catawba power plant are other principal employers.

TAX BASE CONCENTRATION

The Catawba power station is owned by four of the county's top taxpayers: N.C. Municipal Power Agency No. 1 (rated 'A', Stable Outlook by Fitch); N.C. Electric Membership Corp. (rated 'A-', Stable Outlook); Piedmont Municipal Power Agency (rated 'A-', Stable Outlook); and Duke Energy (rated 'BBB+', Stable Outlook). The plant accounts for 14.2% of the 2013 tax base, generating some credit concern (although the concentration is down from 1999 when Catawba owners represented 24% of assessed valuation). Duke Energy, an investor-owned public utility, operates Catawba, as well as two other nuclear power plants in North Carolina and South Carolina.

EXCEPTIONAL RESERVES

The county has historically realized positive operating margins through prudent fiscal stewardship and conservative budgeting practices. Robust operating surpluses in the fiscal periods leading up to the recession enabled the county to make significant investments in capital while maintaining exceptionally high fund balance levels. The general fund recorded positive net results in nine of the past 10 fiscal years.

Fund balance remained essentially flat in fiscal 2013 despite a planned use of $4.6 million, due to conservative budgeting and careful expenditure controls. The unrestricted fund balance equaled $64.9 million or a robust 86% of spending. The county targets an unassigned fund balance equal to 25% of spending, which Fitch considers adequate. Reserve levels have historically been well in excess of this target.

2014 BUDGET SUMMARY

The fiscal 2014 operating budget is $93.4 million, a 4.9% increase over the prior year's budget. It includes a 3.2% increase in the tax rate, which is well below the maximum allowable increase, and a $7.9 million planned use of fund balance for capital projects.

Based on year-to-date operations, management expected to use only $5.9 million of fund balance (6.3% of general fund spending) due to positive operating variances. If realized, this result would bring unrestricted general fund balance at year-end to $58.8 million, or a still healthy 62.7% of budgeted fiscal 2014 spending.

MANAGEABLE DEBT AND LONG-TERM LIABILITIES

Overall debt, including underlying units of local government, is moderate at $2,858 per capita and 3.2% of market value for fiscal 2012. Amortization is extremely rapid, with 92% of principal retired within 10 years. The fiscal 2012-2016 capital improvement plan (CIP) for tax-supported projects is largely funded by revenue from a voter-approved sales tax extension.

The county is currently conducting a capital needs study, which it expects to conclude during fiscal 2014. The analysis will address the myriad of capital needs generated by the county's recent population growth. Although the assessment is likely to recommend the issuance of new tax supported debt, the county does not anticipate debt issuance until fiscal 2016. Fitch does not expect future debt to pressure the credit, given the county's current moderate debt profile and exceptionally rapid rate of amortization.

Pension obligations do not stress the county's financial flexibility. The county is a member of the South Carolina Retirement System (SCRS) and the South Carolina Police Officers' Retirement System (PORS). The county contributes the annual required contributions (ARC) annually. Fiscal 2013 aggregated contributions to SCRS and PORS totaled $4.6 million (3.6% of spending).

Fitch notes that funding for the state plan was low at 61% as of the July 1, 2012 valuation, assuming a Fitch-adjusted discount rate of 7%. The county's ARC obligations have increased in recent years in an effort to improve funding. The county's contributions are likely to increase further, but Fitch expects the county could withstand a sizable increase in ARC payments before straining financial flexibility.

The county is taking steps to reduce its OPEB obligation. The county closed the plan to new employees in fiscal 2012, and is considering the impact of fully funding the plan to mitigate future obligations. For fiscal 2013, the county contributed $1.6 million (1.3% of government spending). Fitch does not expect OPEB obligations to pressure the county's finances going forward. Overall carrying costs for pension, OPEB and debt service constitute a low 7.95% of governmental spending in fiscal 2013.

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.

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=815473

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Fitch Ratings
Primary Analyst
George M. Stimola, [phone]
Analyst
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
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Secondary Analyst
Evette Caze, [phone]
Director
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Committee Chairperson
Steve Murray, [phone]
Senior Director
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Elizabeth Fogerty, [phone]
[e-mail]