OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following Fairfax County, Virginia general obligation bonds:

--\$256.3 million public improvement bonds series 2015A;
--\$66.1 million public improvement refunding bonds, series 2015B;
--\$144.6 million public improvement refunding bonds, series 2015C.

Proceeds from the 2015A bonds will be used to fund various school and general government capital projects. Proceeds from the 2015B bonds will be used to advance refund various series of bonds and the 2015C bonds will be used to forward refund the series 2005A bonds for debt service savings.

The series 2015A bonds are scheduled for competitive sale on Feb. 18, 2015. The series 2015B & C bonds are scheduled for competitive sale on Feb. 25, 2015.

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

--Approximately \$2.1 billion of outstanding general obligation (GO) bonds.

Fitch also affirms the 'AA+' and 'AA' rating on various outstanding revenue bonds issued by the Economic Development Authority (EDA) and Redevelopment and Housing Authority (RHA) constituting an appropriation-backed obligation of the county (see the end of this press release for a list of the affirmed EDA 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.

The outstanding revenue bonds issued by the EDA and RHA are secured by the county's obligation to make lease payments equal to debt service, each subject to annual appropriation. A two notch distinction is assigned where bondholder payments are not secured by a leasehold interest in essential governmental facilities.

The series 2005 parking revenue bonds are secured by the county's obligation to replenish any reserve fund deficiency.

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 a minimum reserve policy requirement 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.

APPROPRIATION RISK: The lower ratings on the revenue bonds issued by the EDA and the RHA reflect appropriation. Where bondholder payments are not secured by a leasehold interest in essential governmental facilities, the rating is two notches lower than the county's ULTGO

RATING SENSITIVITIES

ADDITIONAL DRAWS ON RESERVES: 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 while the economy remains stable to improving.

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 ADEQUATE RESERVES

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

Over the past four fiscal years the county has recorded operating deficits annually, albeit modest at less than 1% of spending. The unrestricted fund balance has declined from a satisfactory \$376 million or 11.2% of general fund spending at year-end 2011 to an adequate \$302 million or 8.3% of general fund spending at year-end 2014.

According to management, the county maintains additional reserves outside the general fund that are available for general fund use. During fiscal 2014, available reserves increased to \$451.8 million or 12.5% of general fund revenues from \$424.8 million or 12.1% a year prior. The increase in available reserves balance is reflective of a \$30 million unbudgeted transfer to the internal service fund to establish a litigation reserve. The litigation reserve was established to address potential business, professional and occupational license tax disputes (BPOL) related to a recent change in the calculation of the tax liability.

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

County management is currently evaluating reserve polices . During the fiscal 2016 budget process the board is expected to adopt more robust reserve polices.

BALANCED FISCAL 2015 BUDGET

The fiscal 2015 general fund adopted budget is \$3.7 billion, which is a 3.6% (\$129.9 million) increase above the fiscal 2014 adopted budget plan. The budget includes a slight increase in the tax rate to \$1.090 per \$100 of assessed value from \$1.085. A 2.3% compensation increase for general fund employees and a merit increase for public safety are included. Year-to-date, revenues are tracking higher than budgeted and expenditures lower, as a result the county anticipates at a minimum break-even results. Fitch would view negatively the continued use of reserves for operations as the economic and revenue recovery continues.

The proposed fiscal 2016 budget to be released later this month is expected to be balanced. Due to improved revenues and spending reductions in fiscal 2015, the county closed what was previously projected to be a \$100.9 million (approximately 2.7% of 2016 budgeted spending) gap. The fiscal 2017 budget forecast shows a moderate \$79.3 million shortfall. 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 71%. The county tax rate or 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 its peers.

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 3.6% as of Nov. 2014. Solid gains have been reported 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 up 4.9% as of Dec. 2014 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 REFLECTIVE OF 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 7.4% of total governmental spending (debt service may not exceed 10% of spending by policy). Outstanding debt is repaid at an above average rate (61% 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 72% using a Fitch-adjusted discount rate of 7%. The somewhat weak funded ratio is somewhat offset by the county's conservative 15-year amortization assumption, although the county has been funding somewhat less than the annual required contribution (ARC) under this assumption 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.

Fitch also affirms the following bonds at 'AA+':

--\$35.15 million Fairfax County EDA lease revenue refunding bonds series 2003 (Government Center Properties);
--\$810,000 Fairfax County RHA lease revenue bonds series 2005 (Herndon Senior Center Issue).

Additionally, Fitch affirms the following bonds at 'AA':

--\$178.4 million Fairfax County EDA facilities revenue and refunding bonds series 2014A;
--\$30.2 million Fairfax County EDA facilities revenue series 2014B (federally taxable);
--\$63.6 million Fairfax County EDA facility revenue bonds series 2012A (Community Services Facilities Project);
--\$44 million Fairfax County EDA facilities revenue refunding bonds series 2012A (Laurel Hill Pub Facilities Issue);
--\$10.9 million Fairfax County EDA parking revenue refunding bonds series 2005 (Vienna II Metrorail Station Project);
-- \$49.2 million (School Board Central Administration Proj Phase 1) facil rev bonds ser 2005A;
--\$403,274,894 revenue bonds (Silver Line phase 2 project) series 2014.