OREANDA-NEWS. Fitch Ratings has assigned an 'F1+' rating to the following Baltimore County, Maryland (the county) general obligation (GO) bond anticipation notes (BANs):

--\$88 million metropolitan district bond anticipation notes -2015 series;
--\$112 million consolidated public improvement bond anticipation notes - 2015 series.

Proceeds will be used for the purpose of providing interim funding for the county's capital program. A competitive sale is scheduled for March 17.


SECURITY

The BANs are payable from the county's pledge of its full faith and credit and its unlimited taxing power. The principal source of repayment for the metropolitan district bonds will be special assessments and charges levied against all property in the metropolitan district.

KEY RATING DRIVERS

CONSIDERABLE ECONOMIC BASE: The broad and diverse economy benefits from the presence of federal installations, health care, financial services, and higher education. Highly structured development efforts, focusing on growth management and collaboration with surrounding jurisdictions, underscore excellent prospects for continued expansion.

HISTORICALLY STRONG FISCAL MANAGEMENT: Prudent management decisions and adherence to fiscal policies have helped maintain solid reserve levels.

FAVORABLE DEBT POSITION: Debt ratios are expected to remain moderate as future debt plans are affordable and principal amortization rates are average.

STRONG MARKET ACCESS: The 'F1+' short-term rating reflects the county's strong overall credit characteristics and expected market access.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The 'AAA' rating and Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Baltimore County, with its population of 823,015, covers 612 square miles and surrounds the independent city of Baltimore.

DIVERSE AND ROBUST ECONOMY

The employment base is broad and deep. Federal installations, health care, financial services, and higher education predominate, with skilled manufacturing and technology becoming a growing sector and major focus of economic development. The county is home to several government agencies including the Social Security Administration and Medicare and Medicaid Services, which combined employ nearly 16,000 people. However, federal employment represents only 5% of the total employment base limiting its exposure to any potential federal downsizing.

County unemployment of 5.4% in December 2014 is down from 5.8% the prior year and reflects the combination of an increase in jobs and a decrease in labor force during the period. Wealth indicators are in line with those of the affluent region and state, but exceed national averages.

Population growth is directed towards two areas anchored by major transportation networks, and preliminary engineering studies have begun for construction of a new light rail line to connect with existing regional rail lines. Fitch believes intermediate and long-range overall economic growth prospects are strong.

STRONG FISCAL MANAGEMENT MARKED BY HEALTHY RESERVES
Financial operations are strong and reserve levels are expected to remain healthy.

Fiscal 2014 results show a \$28 million operating deficit which compares favorably to the \$39.5 million fund balance appropriation. Reserves were used for one-time capital spending. The unrestricted balance increased to \$393.5 million or 21.5% of spending due to an increase in the designation for subsequent year's expenditures in the assigned balance.

The unassigned portion of the unrestricted fund balance includes the county's revenue stabilization reserve equal to \$85 million (or 4% of spending) and is at the county's minimum policy level of 5% of budgeted revenues. Management's fiscal projections for the next five years demonstrate compliance with this target. Fitch believes such projections to be reasonable based on the county's conservative budgeting practices and current level of reserves above the target.

The \$1.86 billion fiscal 2015 budget is 8% above the fiscal 2014 budget and includes a \$78 million fund balance appropriation. It is the 22nd straight year of no property tax rate increases. The budget funds a \$7.2 million increase in pension funding to offset the lowering of the discount rate to 7% from 7.25%, which Fitch views as prudent. The budget also funds capital spending of \$49 million (up from \$27 million), an 8% increase in school spending, \$4 million in additional other post-employment benefits (OPEB) funding to fully fund the annual required contribution (ARC), and a 3% bonus to employees. Year-to-date, net operations are tracking approximately \$5 million better than budget.

The county's five-year financial forecast shows an intentional projected reduction in unassigned and assigned general fund balance closer to its newly revised policy level of 8% of revenues in the final year primarily due to expected cash-funding of future capital projects, although historically the county has outperformed budgeted drawdown. Fitch expects management to maintain a sound financial profile while funding its capital plan.

DEBT PROFILE EXPECTED TO REMAIN MODERATE
Future capital needs are substantial. Overall tax-supported debt ratios are moderately low at \$2,332 per capita and 2.4% of market value. Debt ratios increase to a more moderate \$3,510 per capita and 3.7% of market value including metropolitan district debt, which is paid from special assessments and charges levied against all property in the district. Amortization of total debt is average at 55% within 10 years and debt servicing costs are low at 4% of total governmental spending.

While operating revenues historically have been sufficient to cover metropolitan district operating expenses and debt service, over the past two years the district has been utilizing enterprise fund balance to pay a portion of debt service while keeping rates unchanged. As of fiscal year-end 2013, cash on hand totaled over six months of operations. The county expects operating revenues to fully cover expenditures by fiscal 2017.

The county's capital program for fiscal years 2015-2020 is \$2.6 billion. The program is primarily funded by metropolitan district funding (56%) and GO bonds (31%). The county has traditionally funded a portion of its capital needs through the issuance of commercial paper (CP) which is subsequently refinanced through the issuance of long-term debt. The county's policy is to maintain up to 20% of outstanding debt in variable rate debt through the CP program. The total CP outstanding is \$200 million - the maximum principal amount that is supported by the current liquidity provider, Mizuho Bank. This CP position results in a variable rate debt position equal to 7% of total debt, a level that Fitch considers reasonable for such a highly rated credit.

MANAGEABLE PENSION AND OPEB COSTS
The county is one of five local entities participating in a cost-sharing multiple employer pension and OPEB plan. The county pays 100% of its pension ARC, equivalent to a low 3.3% of fiscal 2013 governmental spending. The plan is adequately funded at an estimated 72% as of June 30, 2013.

The county administers an OPEB trust fund that provides benefits for its retirees. As of June 30, 2013, the county maintained a funded ratio of 13.6% based on actuarial asset values of \$232 million and an accrued liability of \$1.7 billion. Total carrying costs for debt service, pension ARCs and OPEB contributions made were low at 15.5% of total fiscal 2013 governmental spending.