Fitch Rates King County, WA's $35.1MM LTGOs 'AA+'; Outlook Stable

Fitch Ratings assigns an 'AA+' rating to the following King County, Washington new debt issuance:

--Approximately $35.1 million limited tax general obligation (LTGO) refunding bonds, 2014.

The bonds are scheduled to price on Feb. 3, 2014, via negotiation. Proceeds will be used to refund outstanding debt for interest savings.

In addition, Fitch affirms the following ratings:

--$137.3 million outstanding unlimited tax GO (ULTGO) bonds at 'AAA';

--$1.6 billion outstanding LTGO bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county, secured by an irrevocable full faith, credit, and resources pledge to levy an ad valorem tax sufficient (together with all other legally available monies) to pay debt service. The county's pledge on LTGO bonds is constrained by property tax levy growth of 1% per year, plus new construction, and a rate cap of $1.80 per $1,000 of taxable assessed value (TAV).

KEY RATING DRIVERS

RESILIENT ECONOMY: King County retains a sound economic base due to its role as a regional economic center and above-average wealth and income levels. Employment levels have seen steady improvement over the past three years and recently surpassed pre-recession peaks. Assessed values for 2014 saw strong growth after four years of declines and recent home price increases point to further gains.

SOUND FINANCIAL POSITION: General fund balances and cash levels remain healthy and increased in 2012. Projections for 2013 reflect continued positive operating results and the county's 2014 budget is balanced.

STRUCTURAL IMBALANCE: The county will be challenged to maintain structural balance over the longer term due to ongoing cost pressures and constraints on revenue growth. Recent efforts to address this imbalance through efficiency measures have shown positive results but could prove difficult to maintain on a permanent basis.

STRONG MANAGEMENT: The county's strong management is reflected in its commitment to long-term planning, adherence to council-adopted financial management policies, and low debt burden.

LIMITS ON REVENUE GROWTH: The county is property tax dependent in a state with restrictive property tax levy growth limits and recent significant TAV declines.

RATING SENSITIVITIES

BALANCED OPERATIONS: The rating is sensitive to shifts in fundamental credit characteristics, including the county's ability to maintain balanced operations despite revenue constraints. A material change in the county's financial flexibility and reserves relative to historical levels, while not anticipated, could pressure the current rating and/or Outlook.

CREDIT PROFILE

DIVERSE ECONOMIC BASE

King County benefits from a diverse economy and tax base that encompasses almost 29% of the state's population. Major private employers include Boeing and Microsoft and the regional economy is also supported by a substantial military presence. The county includes the Pacific Northwest's largest city, Seattle, and serves as a regional economic center. Wealth and income levels are well above national averages, and property values are high at approximately $172,000 per capita.

King County performed better than many regions nationally in the recent downturn and has experienced steady employment gains during the past three years. The county unemployment rate of 5.0% in November 2013 was well below the 7.0% national rate, and total employment levels recently surpassed pre-recession peaks. December 2013 home values reported by Zillow.com increased by 10.6% compared to one year earlier, and assessed values rose by 8.2% in 2014 after four years of declines.

CONTINUED PROGRESS IN ADDRESSING STRUCTURAL IMBALANCE

King County's general fund fared better during the recent downturn than general economic indicators might suggest. Total revenues increased at a modest average annual rate of 0.9% between 2008 and 2012, while the county impressively held spending stable. In addition to ongoing savings from labor cost reductions achieved during this period, the county has sought to reduce costs by 3% per year on an ongoing basis through efficiency improvements. Key efficiency gains to date have included reductions in employee health insurance costs, office space consolidation, and correctional psychiatric care improvements.

Such efficiency efforts respond to legal limits on growth in property tax, the general fund's largest source of revenue, and are intended to address the structural imbalance between projected revenue and expenditure growth. Voter-approved property tax levies for specific purposes, such as parks or criminal justice, have also helped the county to reduce demands on its general fund in recent years, but Fitch believes out-year gaps could prove challenging to manage.

STRONG RESULTS FOR 2012

General fund balances improved in 2012 for the third consecutive year. Unrestricted fund balance reached 20.6% of general fund spending ($133.1 million), although subsequent adjustments of approximately $6 million have reduced these figures slightly. Balance sheet liquidity remained satisfactory with general fund cash and investments of $106.1 million, equivalent to two months of general fund spending.

Management reports continued positive operating margins for the fiscal year ending Dec. 31, 2013, which Fitch considers reasonable based on year-to-date results and the county's strong track record. The 2014 budget is balanced and includes a 4% increase in appropriations, largely attributable to service expansions funded by new revenue.

LOW DEBT; MANAGEABLE PENSIONS

The county's debt burden remains low with overall debt at 1.9% of TAV. Amortization is quicker than average with approximately 66% of direct debt repaid in 10 years.

Pension liabilities are manageable and reflect historical strong funding levels for most state-sponsored plans. Other post-employment benefit liabilities are relatively minor as most retirees must pay for the cost of their participation in the county's group insurance plan. Carrying costs for both debt and retirement benefits are low at approximately 9% of governmental expenditures in 2012.

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, IHS Global Insight, and Zillow.com.

Applicable Criteria and Related Research:

--'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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818030

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