OREANDA-NEWS. Fitch Ratings has affirmed the following ratings on Union County, North Carolina (the county):

--\$238.7 million general obligation (GO) bonds at 'AA+';
--\$57 million limited obligation bonds (LOBs) series 2012 and 2013 at 'AA';
--\$9.3 million series 2006 certificates of participation (COPs) at 'AA'.

The Rating Outlook is Stable.

SECURITY

GO bonds are general obligations payable from the full faith and credit and unlimited taxing power of the county.

COPs and LOBs are payable from lease payments subject to annual appropriation by the county and by a lien on essential government assets.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The county continues to exhibit solid reserve levels and controlled expenditure growth despite pressures related to rapid population growth.

AVERAGE OVERALL DEBT PROFILE: Overall debt levels and total carrying costs remain moderate. Pension and other post-employment benefit (OPEB) costs are modest and do not pressure financial operations.

FAVORABLE ECONOMIC INDICATORS: The county's economy benefits from the broad employment base of the city of Charlotte in adjacent Mecklenburg County. Wealth levels continue to exceed national averages. Unemployment is low relative to state and national averages.

APPROPRIATION RISK: The 'AA' rating assigned to the COPs and LOBs reflects appropriation risk, as well as the level of essentiality assigned to assets securing the bonds.

RATING SENSITIVITIES

NEGATIVE FINAL SCHOOL JUDGMENT: A significant negative judgment associated with ongoing school district litigation that exerts pressure on the county's financial and/or debt profiles could lead to downward rating action.

CREDIT PROFILE

Union County is located in south-central North Carolina and is part of the rapidly growing Charlotte-Gastonia-Rock Hill metropolitan statistical area (MSA). Population growth has been rapid increasing 6% since 2010.

STRONG FISCAL MANAGEMENT MARKED BY HEALTHY RESERVE LEVELS

Financial operations historically have been characterized by maintenance of healthy reserves, adherence to internal reserve policies, and a conservative approach to budget development. During fiscal 2014, the county realized a fourth consecutive net operating surplus after transfers of a modest \$479,000. The unrestricted fund balance totals approximately \$65 million or an ample 26.8% of general fund spending.

The county's statutorily required reserve, which is primarily to offset accounts receivable, is a source of additional financial flexibility. This reserve totaled \$14.5 million at fiscal year-end 2014, or an additional 6% of spending. The county has a goal of unassigned general fund balance as a percent of spending of 20%. As of fiscal 2014, the county was in compliance with its goal.

The fiscal 2015 combined general fund and school budget of budget of \$260.5 million represents a 5.3% increase over the fiscal 2014 adopted budget. The budget increases the tax rate by 15% primarily to fund additional Union County Public Schools costs and appropriates \$1.9 million of fund balance.

During fiscal 2014, the county filed a notice of appeal regarding the October 2013 verdict in the trial of Union County Board of Education vs. the Union County Board of Commissioners which awarded the school system almost \$5 million in additional current expense funds and an additional \$86 million in capital funding. The case is scheduled to be heard during March of 2015. According to management, to offset any final liability a property tax rate increase would be implemented. Education remains the county's largest expenditure (operating, capital and debt service costs) at 66% of the general fund spending.

The county's five-year financial projections show modest operating deficits. Fitch expects the county to address the projected shortfalls through its established practices of conservative budgeting and spending controls (the county typically underspends its budget by 3%-4%).

MODERATE DEBT PROFILE

Overall debt levels are moderately low at \$1,939 per capita and 1.9% of market value. The county's debt is mostly fixed rate, with variable rate debt accounting for a modest 4.2% of general government debt. In addition to variable rate exposure, the county has \$108 million in debt (26% of total debt) that is subject to refinance risk given the interest rate on the bonds convert to max rate of 22% in the absence of an extension or renegotiation in May of 2019. Debt service costs are high, consuming about 19.7% of total governmental fund spending in fiscal 2014. Amortization of outstanding principal is above average with roughly 68% of principal retired within 10 years.

Fitch expects debt levels to decline modestly in the future as the county has no immediate debt plans. The county's \$200 million capital improvement plan includes approximately \$120 million of identified projects that are currently unfunded and would require future debt authorization as well as \$69 million of pay-go spending and mostly provides funding for public safety related projects.

Funding for pension obligations does not represent a large cost pressure. The county contributes to four retirement plans including the well-funded state Local Government Employees' Retirement System. The county's fiscal 2014 total contribution was an affordable \$6 million or 2.5% of governmental spending. For other post-employment benefits, the county pays its obligation on a pay-go basis. For fiscal 2014 the annual contribution represented 2.7% of spending. Total carrying costs were moderate at 25% of total governmental fund spending.

GROWING ECONOMY

Union County is a rapidly growing, primarily residential, suburb of Charlotte. The county's population, estimated at 212,756 in 2013, grew a notable 6% since the 2010 census outpacing the growth rate of the state and nation. Population is projected to increase 9% to 232,655 by 2019.

Most of the county's largest employers and taxpayers are manufacturing companies. Corporate expansions and developments in the county have been limited in nature and focused on manufacturing and construction. The county's economy does have a significant agricultural component. The county posts the third highest level of agribusiness receipts in the state.

Economic indicators are positive. The employment base continues to expand. As a result, unemployment declined 1.6% year-over-year to 4.4% as of November 2014, well below the state and national rate. Wealth indicators are above state and national averages.