Fitch Affirms Pitt County, NC's COPs/LOBs at 'AA'; Outlook Revised to Stable

Fitch Ratings takes the following rating action on Pitt County, North Carolina (the county):

--$54.7 million limited obligation bonds (LOBs) affirmed at 'AA';
--$92.7 million, certificates of participation (COPs) affirmed at 'AA';
--Implied general obligation (GO) rating affirmed at 'AA+'.

The Rating Outlook is revised to Stable from Negative.

SECURITY
The COPs and LOBs are secured by payments subject to appropriation, and a deed of trust provides security interest in essential government assets.

KEY RATING DRIVERS

IMPROVED FINANCIAL OPERATIONS: The revision in the Outlook to Stable reflects an improvement in general fund operating results stemming from a combination of expenditure reduction actions and revenue raising measures.

HEALTHY RESERVE LEVELS: Fiscal 2013 year-end results show a second year of operating surpluses contributing to an unrestricted general fund balance of a healthy 15% of spending.

REGIONAL HUB: Pitt County serves as the main economic center for northeastern North Carolina. Wealth indicators are below state and national averages, and are somewhat skewed by a large student population. Unemployment is above state and national averages. The tax base has been relatively stable.

LOW DEBT INDICATORS: Overall debt levels are low at 1.5% of taxable assessed value and $1,066 per capita. The debt service burden on the general fund is low and, given the absence of immediate additional debt plans, should remain affordable. Pension and retiree health costs consume an affordable share of county resources.

APPROPRIATION LIEN ON ASSETS: The one-notch distinction between the GO rating and the 'AA' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments to be made by the county, somewhat offset by the deed of trust for the essential leased assets.

RATING SENSITIVITIES

MAINTENANCE OF FISCAL BALANCE: Existing reserves provide a healthy financial cushion, but inability to maintain fiscal balance could lead to downward rating pressure.

CREDIT PROFILE
Located 90 miles from Raleigh, Pitt County is a rapidly growing retail, commercial, healthcare, and education center for northeastern North Carolina. As one of the fastest growing centers in the state, the population increased by 25.7% between 2000 and 2010. Population is expected to further increase by 26.6% by 2020. The county attributes population growth to affordable land and a good transportation system in the southern part of the county and new schools.

POSITIVE OPERATING RESULTS AFTER SEVERAL YEARS OF RESERVE DECLINES

Conservative budgeting and continued spending cuts allowed the county to realize an operating surplus in fiscal 2013 of $3 million or 2.4% of general fund spending and transfers out. This increased the unrestricted fund balance to $19.2 million or a healthy 15% of spending. Fiscal 2013 was the second consecutive year of positive operations after four years of deficits which have reduced reserves to below the county's goal of 18%-20% of spending. The county's reserve by state statute, which is primarily to offset accounts receivable, is a source of additional financial flexibility. This reserve totaled $7.8 million at fiscal year-end 2013, or an additional 6% of spending.

The adopted fiscal 2014 budget is a 3.8% increase over the prior year, keeps the property tax rate flat and includes a $2 million fund balance appropriation. The increased budget funds one-time and ongoing measures. Notably, the budget includes the funding of a $350,000 addition to fund balance. Despite the reserve appropriation, management is anticipating positive operations based on conservative budgeting and expects to add to fund balance at year-end. Management expects to meet the fund balance goal by fiscal 2015.

PROPERTY TAX LARGEST SOURCE OF REVENUE; PROVIDES STABILITY

Property tax revenues are the county's largest revenue source at 59%. Following a 3.8% cumulative decline in taxable assessed value between 2011 and 2013, assessed value increased 2.9% in fiscal 2014. The county's property tax rate is average, compared to similar-size neighboring communities, at $0.68 and below the statutory cap of $1.50 per $100 of AV. Total tax collections remained weak at 97% at year-end 2013 but are expected to improve due to a new vehicle-tax collection process.

REGIONAL ECONOMY

The employment base is diversified with services, healthcare, wholesale/retail trade and education each accounting for at least 15% of total employment. Labor statistics show flat year-over-year growth. As of October 2013, the unemployment rate was 7.8%, a notable improvement from the 9.1% a year prior, but above the state's average of 7.5% and national rate of 7.0%. Major employers include: Vidant Medical Center (6,857 employees), East Carolina University (5,392 employees), DSM (1,250 employees) and NACCO (1,000 employees). Several of the county's largest employers continue to expand their operations with additional investments.

FAVORABLE DEBT PROFILE; AFFORDABLE LONG- TERM LIABILITIES

Debt levels are modest at 1.5% on an overall basis and $1,066 per capita. Debt service represents an average 11.2% of total governmental spending. The county does not have any long-term debt plans. Pay-go spending is estimated at $1.3 million annually over the next four years.

Pension and other post-employment benefits (OPEB) benefits continue to be well managed. The county contributes to four retirement plans including the Local Government Employees' Retirement System (LGERS). The county's fiscal 2013 total contribution was an affordable $7.2 million or 4.5% of governmental spending. For OPEB, the county pays its obligation on a pay-go basis. For fiscal 2013 the annual contribution represented less than 1% of 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 Shackelford & 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=815162
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