OREANDA-NEWS. Fitch Ratings affirms the ratings on the following county obligations:

--\$51 million county general obligations (GO) bonds at 'AA';
--\$30 million series 2012 limited obligation bonds (LOBs) and series 2005 certificates of participation (COPs) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by the county's full faith, credit, and unlimited taxing power.

The COPs and LOBs are payable from lease payments subject to annual appropriation by the county. Essential government assets are subject to a lien in favor of bondholders.

KEY RATING DRIVERS

HEALTHY FINANCIAL PROFILE: Financial operations are characterized by a conservative approach to budget development, detailed monitoring of revenues and spending, strong expenditure controls, and steady compliance with reserve policies.

LOW DEBT BURDEN; AFFORDABLE CARRYING COSTS: The debt burden is low, debt servicing costs are low, and outstanding debt is rapidly amortized. Future borrowing needs should not affect debt ratios.

SEASONAL ECONOMIC BASE: The tourism sector remains a significant economic driver, vulnerable to economic cycles and contributing to seasonal employment fluctuations.

APPROPRIATION LIEN ON ESSENTIAL ASSETS: The 'AA-' rating on the COPs and LOBs reflects the appropriation risk inherent in the installment payments to be made by the county to the trustee, the essential nature of the respective leased assets, and the general creditworthiness of Brunswick County.

RATING SENSITIVITY

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely over the coming review cycle.

CREDIT PROFILE

Brunswick County is a primarily residential community located in southeastern North Carolina along the Atlantic Ocean. The county's population continues to climb at a rapid rate, with growth averaging nearly 4% since 2000. The 2014 population is 115,301 residents.

STRONG FISCAL MANAGEMENT

Brunswick County has a solid history of conservative budgeting, and its strong reserve levels are evidence of prudent financial management. The general fund unrestricted fund balance has remained above the county's 20% policy since at least fiscal 1996.

Fiscal 2013 closed with a sizable \$7 million general fund operating surplus (equal to 4% of spending), despite a \$4 million appropriation of fund balance. Both revenues and expenditures had sizable positive variances from budget. Economic recovery boosted revenues, with prior year real property tax collections and sales tax collections showing robust growth. Positive budget variance on spending was achieved through strong expenditure controls, including departmental savings and payroll savings through attrition. The unrestricted fund balance of \$56 million was an ample 32.2% of spending at fiscal 2013 year-end.

In fiscal 2014 the county increased the appropriation of reserves to \$11.3 million, but again, positive variances on revenues and expenditures were achieved and the county had essentially balanced operations. The county transferred a sizable \$11.2 million from the general fund for pay-as-you-go financing of capital projects. As a result of a compensation study, the budget included \$2.5 million for pay increases ranging from 3% to 5%. The fiscal 2014 year-end general fund unrestricted reserves were again a strong 32.3% of spending. In addition, Fitch considers the county's statutory reserve, which is primarily to offset accounts receivable, a source of additional financial flexibility at \$8 million or an additional 4.7% of fiscal 2014 spending.

The fiscal 2015 budget is balanced with a \$3.8 million appropriation of general fund balance, although none of the appropriated reserves are expected to be used. In fact, favorable performance has enabled the county to add pay-go funding projects in excess of \$6 million. Sales tax and current property tax collections both are outperforming budget. The budget also includes a pay-scale adjustment of 1.5% and merit increases of up to 2%. Year-end balances are expected to be stable.

Property taxes are the county's largest operating revenue source at 68% of the fiscal 2014 total. The county's tax base declined 27% for fiscal 2012 due to the quadrennial revaluation. The county council adjusted its tax rate to the revenue neutral rate. The next revaluation (fiscal 2016) is expected to show a further 10% decline in values due to a softening in vacant land values. The county expects to again adjust the tax rate to a revenue neutral rate. The county has one of the lowest tax rates in the state at \$0.4425 per \$100 of assessed value (AV) in fiscal 2015, well below the statutory cap of \$1.50.

MAINLY RESIDENTIAL COASTAL COMMUNITY

Brunswick County is rural and its economy is limited and dependent on tourism, leaving it vulnerable to economic cycles and contributing to seasonal employment fluctuations. The county's employment base includes healthcare and utility sectors, with Brunswick Novant Medical, Dosher Memorial Hospital and Duke Energy among the larger employers. The county's unemployment rate of 6.1% for November 2014 reflects the economy's seasonality; the rate was moderately above both the state and national averages of 5.3% and 5.5%, respectively. Income levels approximate the state averages. There is no tax base concentration, with the 10 largest taxpayers accounting for just 7.3% of fiscal 2014 AV.

FAVORABLE DEBT PROFILE

Overall debt levels are low at \$843 per capita and 0.4% of market value, and amortization is rapid with 93% of tax supported debt retired in 10 years. The five-year CIP includes general government spending needs of \$56 million for county projects and \$111 million for education projects. The county is planning an issuance of \$12 million in LOBs in April to finance a multi-purpose facility as well as a high school expansion project.

Pension and other post-employment benefits (OPEB) continue to be well managed. The county contributes to three retirement plans including the Local Government Employees' Retirement System (LGERS). The county's fiscal 2014 carrying costs for debt service, pensions, and OPEB were a low 10% of governmental spending.

For OPEB, the county pays its obligation on a pay-go basis. The fiscal 2014 contribution represented 0.8% of spending. Eligible employees hired on or after Jan. 1, 2012 have the option of purchasing retirement healthcare coverage at the group rate, limiting the county's OPEB cost trajectory. As of Dec. 31, 2012 the OPEB unfunded actuarial accrued liability was a moderate \$66.6 million (0.3% of the estimated actual taxable value of real property).

STRONG INCENTIVE TO APPROPRIATE

The COPs and LOBs are each secured by lease payments made by the county pursuant to a deed of trust and a lien on the mortgaged property subject to permitted encumbrances. Mortgaged property conveyed under the deeds of trust for the COPs (a courthouse, and several detention center buildings), and the LOBs (two schools) are properties whose essentiality provides sufficient incentive to appropriate.