Fitch Ratings assigns an 'AAA' rating to the following Fairfax County, Virginia general obligation (GO) bonds:

--$316 million public improvement and refunding bonds series 2016.

Proceeds from the 2016 bonds will be used to fund various school and general government capital projects. The series 2016 bonds are scheduled for competitive sale on Jan. 26, 2016.

Fitch affirms the following Fairfax County, VA bonds at 'AAA':

--Approximately $2.06 billion of outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The GO bonds are general obligations of Fairfax County, for which its full faith and credit and unlimited taxing power are irrevocably pledged.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Financial operations are characterized by a conservative approach to budget development, timely revenue and spending adjustments, and consistent compliance with the county's previous minimum reserve policy requirement levels of 5% of spending despite modest use of reserves in recent years.

ROBUST ECONOMY & EXCEPTIONAL DEMOGRAPHIC INDICATORS: The county's strong and diverse economic base benefits from its location near Washington D.C., with high wealth levels and low unemployment. Assessed value continues to expand, reflecting a recovering housing market.

FAVORABLE DEBT PROFILE: Fairfax County continues to adhere to good debt management guidelines, which have allowed overall debt levels to remain low. Future needs according to the capital improvement plan are affordable and should not impact debt ratios. Debt amortization is above average.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the county's adherence to strong financial management practices. The 'AAA' rating and Stable Outlook reflect Fitch's expectation that the county will maintain fiscal balance without use of reserves for operating purposes.

CREDIT PROFILE

Fairfax County is located in the northeastern corner of the Commonwealth and encompasses an area of 407 square miles. Its current estimated population exceeds 1.13 million. The county is part of the Washington, D.C. metropolitan area, which includes jurisdictions in Maryland, the District of Columbia and Northern Virginia.

SOUND FISCAL MANAGEMENT MARKED BY SATISFACTORY RESERVES

Historical financial operations are characterized by maintenance of satisfactory reserves, adherence to internal reserve policies, a conservative approach to budget development, and timely revenue and spending adjustments.

Between fiscal 2011 and 2014 the county recorded operating deficits annually, albeit modest at less than 1% of spending. Fiscal 2015 ended with a modest $23.1 million operating surplus (0.6% of spending). The unrestricted fund balance at fiscal year-end 2015 was $325 million or 8.7% of general fund spending at year-end 2015.

Effective April 2015 the county adopted enhanced reserve policies that require a general fund reserve of 10% of spending, which increased from 5%. The county expects to meet the new policies over a multi-year process that includes annual additions to reserves as the budget increases.

The county maintains additional reserves outside the general fund that are available for general fund use. At fiscal year-end 2015, available reserves totaled $176.8 million or an additional 4.7% of general fund spending.

While Fitch recognizes these reserves as additional flexibility, the county does not have an internal policy in place that requires a minimum reserve level for all the additional reserves to be maintained and therefore reserves may be more subject to fluctuation than general fund reserves that are governed by a policy.

BALANCED FISCAL 2016 BUDGET

The fiscal 2016 general fund adopted budget is $3.82 billion, which is a 2.8% ($103.2 million) increase above the fiscal 2015 adopted budget plan. The budget does not include any revenue enhancements or fund balance appropriation. The budget increase is mostly due to an increased transfer to the schools, compensation increase for all county employees, and additional human service funding. Year-to-date, operations are consistent with the fiscal 2016 adopted budget plan. The county does expect to add to fund balance at year-end.

Consistent with previous years, the fiscal 2017 budget forecast shows a deficit of $85 million (2% of projected spending). Based on the county's historical prudent budget planning Fitch expects management will make the necessary adjustments to maintain fiscal balance.

Property taxes are the county's largest general fund source of revenues at over 73%. The county tax rate and levy are not subject to a legal limit or cap, providing the county with significant revenue raising authority. The county's tax rate is comparable to other large nearby counties.

ROBUST AND DYNAMIC REGIONAL ECONOMY

Fairfax County's economy continues to perform well, benefiting from an established business base of federal contractors and high-tech companies that leverage Fairfax's highly educated labor pool, technology infrastructure, and an extensive transportation network anchored by Washington Dulles International Airport (Dulles).

The county's unemployment rate remains well below the state and nation, at 3.1% as of Nov. 2015. Solid gains are projected to continue within the professional, scientific and technical business services, and retail trade sectors.

The strong local job market is complemented by one of the more highly educated labor forces in the nation, contributing to median household income of twice the national average. The housing market has exhibited signs of stabilization, with median sold price essentially flat as of December 2015 compared to a year prior, according to Zillow.

An expansive multi-modal transportation system serves the region; however, significant infrastructure is necessary to alleviate congestion and promote commerce and industry. Management has identified this as a long-term challenge but one that should be somewhat addressed with the recently completed Dulles Metrorail expansion project, which includes five new stations in the county.

LOW DEBT LEVELS REFLECT WEALTH and PRUDENT POLICIES

Overall debt remains low (1.5% of market value) and well below the county's 3% policy, largely reflecting the affluence of the county's tax base and a conservative approach to debt management and long-term capital planning. Debt service accounted for an affordable 9% of total governmental spending. The county is in compliance with its policy that limits tax-supported debt service as a percentage of general fund spending to 10%. Outstanding debt is repaid at an above average rate (69% within 10 years) helping to mitigate the impact of future bond sales. Fitch does not anticipate a material change in debt ratios in the near term.

Pension costs consume a reasonable share of the governmental spending (approximately 5%) and the county-administered pension plans are funded at 77.7% using a Fitch-adjusted discount rate of 7%. The plan assumptions include a conservative 15-year amortization assumption. During fiscal 2015, the county fully funded the actuarially determined rate while is prior years the county had been funding less than the annual required contribution. The unfunded liability is less than 1% of market value. Other post-employment benefit (OPEB) costs represent less than 1% of governmental spending and the ARC is fully funded.

Additional information is available at 'www.fitchratings.com'.

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by the end of the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.

Applicable Criteria
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997785
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997785
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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