Fitch Affirms Roanoke County, VA $52MM Lease Revenue Bonds at 'AA'; Outlook Stable

Fitch Ratings affirms the following outstanding Roanoke County (the county), VA ratings as part of its continuous surveillance effort:

--$52.1 million Economic Development Authority of the County of Roanoke, VA lease revenue bonds (public facility projects) series 2008 at 'AA'.

The Rating Outlook is Stable.

SECURITY

The lease revenue bonds are secured by a pledge of basic rent payments made by the county, subject to annual appropriation, pursuant to a financing agreement between the county and the Economic Development Authority (EDA). Further pursuant to a leasehold deed of trust, the EDA has granted a lien for the benefit of the trustee on its leasehold interest.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE AND SOUND RESERVES: Financial performance has been strong over the past five years as a result of sustained positive financial management and controlled expenditure growth resulting in strengthened reserve levels.

DIVERSE REGIONAL ECONOMY: The county benefits from its proximity to the city of Roanoke, a regional hub underpinned by strong transportation and medical sectors. The broad county employment base has maintained a low unemployment rate with income levels that compare favorably to national levels.

STABLE TAX BASE: Overall taxable assessed valuation (TAV) has experienced slight declines through the economic downturn. There are recent indications that improving construction activity is offsetting residential declines and minimizing the impact on the county's tax revenues.

MODERATELY LOW DEBT: Overall debt levels are expected to remain moderately low due to the county's commitment to a combination of moderate debt issuance and pay-as-you-go capital funding.

APPROPRIATION DEBT LIEN ON ESSENTIAL ASSETS: The lease revenue bonds are subject to annual appropriation. Essential government assets subject to a lien provide sufficient incentive to appropriate.

CREDIT PROFILE

Roanoke County, located in the Roanoke Valley, is a member of the regional transportation and medical hub anchored by the city of Roanoke. County population growth has been steady, increasing by about 0.7% annually over the past decade to 92,901 in 2013.

A DIVERSIFYING ECONOMY
Continued industrial and commercial development activity has historically driven population growth and provided reasonable tax base stability. While overall development has been moderate, it has diversified the traditional manufacturing base to include higher wage research and development and high-technology manufacturing.

Residential activity remains modest with overall construction activity over the past three years offsetting most residential market value declines, holding the county's total taxable assessed value just under $9 billion. Leading taxpayers are a diverse mix of utilities, residential developments, retail and manufacturers, with the top 10 comprising a low 4% in 2012. The county's November 2013 4.5% unemployment rate remains lower than the state average of 5.0% and the national average of 6.6%. Wealth indicators are at or slightly above state levels and solidly above national levels.

SOUND FINANCIAL PERFORMANCE
Financial management is strong, as reflected in sound reserve levels, detailed planning, and stringent expenditure controls. The county routinely meets its financial reserve policy, which is maintaining a reserve of 11% of the following year's budgeted general fund revenues. Fitch measures financial reserves as the unrestricted fund balance, which is comprised of the sum of committed, assigned, and unassigned fund balance. In fiscal 2013, the county concluded with a $1.6 million surplus equal to 0.9% of spending and reported a sound unrestricted general fund reserve of $33.9 million or 18.6% of expenditures.

The fiscal 2014 budget is balanced without appropriation of any fund balance reserves and essentially flat to prior year. The fiscal 2014 budget includes no increase in tax rates, minimizes direct service impacts and maintains a commitment to schools and public safety. Performance year to date indicates revenues are higher than budgeted.

MANAGEABLE DEBT PROFILE
The county's debt profile benefits from the county's adherence to conservative policies. Its debt burden has remained consistent at a moderately low $2,047 per capita and 2.1% of market value. The county's debt service expenditures were below its internal target of 10% of general fund and school board expenditures. Fitch calculates debt service as a percent of total governmental spending which was a satisfactory 11.2% for fiscal 2013. Principal is retired at an average 54% within 10 years.

Future capital needs are affordable as principal retired approximates the amount of debt projected to be issued according to the county's five-year capital improvement plan (CIP) 2014-18. The CIP totals $93 million, of which $28 million represents projects with identified funding sources; the remainder is pending identification of funding and is subject to deferral. Approximately $18 million of debt is scheduled for issuance for the county's CIP as well as about $20 million for school financings. The county prudently sets aside funds to be used for pay-as-you-go capital financing or servicing of future debt.

AFFORDABLE LONG-TERM LIABILITIES
County employees participate in the state-administered Virginia Retirement System (VRS), and the county makes annual payments as determined by the state that equal its annual required contribution (ARC). The county is phasing in increased contributions due to more conservative interest rate assumptions enacted by VRS. The phase-in is authorized by VRS and will be spread over the next three biennia. The county will attain full funding of the ARC within the allotted time. The county chose to phase-in increases to evenly spread out the higher costs without impacting operational spending. Fitch believes the county can afford the increased contributions. The system-wide funding of the VRS declined in recent years in part due to underfunding of contributions (partially used as a budget balancing measure), and the June 30, 2013 funded ratio was 74%, down from 84% funded on June 30, 2009. As of 2011, the system utilizes a 7% investment return assumption, in line with Fitch's standard adjustments to pension system liability calculations for other governments. The county offers other post-employment benefits (OPEB) and fully funds its ARC which accounted for a modest 2.3% of fiscal 2013 spending. Total county carrying costs (pension, OPEB and debt service) for fiscal 2013 totaled a moderate 14.5% of total expenditures.

LEASE REVENUE BONDS INCLUDE LIEN
Payments supporting lease revenue bonds are subject to annual appropriation by the county, pursuant to a financing agreement between the county and the EDA. Further security is provided by a leasehold deed of trust granting a lien by the EDA for the benefit of the trustee on its leasehold interest. The lease revenue bonds financed the construction of a recreation center, library and fire station which were completed within budget. Lease revenue bond debt service ranges from $3.5 million to $4 million annually through final maturity in 2037 and includes a standard debt service reserve fund in the form of a surety.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the 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, Zillow.com, and National Association of Realtors.

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=816342
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