OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following Baltimore County, Maryland (the county) general obligation (GO) bonds:

--\$97.89 million metropolitan district bonds - 2015 refunding series;
--\$69.59 million consolidated public improvement bonds - 2015 refunding series.

Bond proceeds will be used to refund various series of bonds for debt service savings. A competitive sale is scheduled for June 16, 2015.

In addition, Fitch affirms the following ratings:

--Approximately \$2.57 billion outstanding GO bonds at 'AAA';
--\$100.63 million outstanding lease obligations at 'AA+';

The Rating Outlook is Stable.

SECURITY

The GO bonds and 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 for water and sewer services.

The lease obligations are payable by purchase installments made by the county that are subject to appropriation and a security interest in certain governmental leased assets.

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 healthy reserve levels.

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

APPROPRIATION RISK AND ASSET ESSENTIALITY: The ratings for the lease obligations reflect appropriation risk and the essential nature of the assets subject to a leasehold interest.

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 826,925, covers 612 square miles and surrounds the independent city of Baltimore.

DIVERSE AND ROBUST ECONOMY

Baltimore County's 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 5.7% in March 2015 is down from 6.4% the prior year and reflects the steady growth in the employment base. 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, not as a source of funding for recurring operating costs. The unrestricted general fund 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. During the current fiscal year 2015, the County has prudently decided to increase its target level for unassigned general fund balance to 10% of general fund revenues from 5%.

The \$1.86 billion fiscal 2015 original budget is 8% above the fiscal 2014 budget and includes a \$78 million fund balance appropriation. The growth in the budget year-over-year is mostly due to an increase in pay-go capital spending. Year-to-date operations are positive relative to budget mostly due to positive variances in transfer and recordation tax revenue. However, the county is projecting a \$61.5 million use of reserves for capital.

The adopted fiscal 2016 budget is a 4.8% increase over fiscal 2015. The budget maintains the property tax rate and income tax rate and includes an \$89.6 million fund balance appropriation. The budget increase mostly funds a \$50 million increase to the capital budget and a 3% cost of living adjustment for county employees. While the budget does include a higher fund balance appropriation, Fitch expects at a minimum that reserves will remain in line with the county's reserve policy.

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 10% 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.

AMPLE REVENUE FLEXIBILITY

Property taxes represent approximately 50% of general fund revenue. Fitch views the county's regionally competitive property tax rate as an important measure of financial flexibility given its dominance as a source of general fund revenues. There are no statutory restrictions on property tax growth. Income taxes represent roughly 38% of general fund revenues. The county's income tax rate is 2.83%, below the maximum of 3.2%.

DEBT PROFILE EXPECTED TO REMAIN MODERATE

Overall tax-supported debt ratios are moderately low at \$2,453 per capita and 2.6% of market value. Debt ratios increase to a more moderate \$3,686 per capita and 3.9% 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 62% within 10 years and debt servicing costs are low at 5.3% 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 2014, cash on hand totaled over six months of operations. The county expects operating revenues to fully cover expenditures by fiscal 2017 given an approved rate increase for fiscal 2016.

Future capital needs are substantial. The county's capital program for fiscal years 2016-2021 is \$2.54 billion. The program is primarily funded by metropolitan district GO bonds funding (58%) and GO bonds (27%). 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 approximately \$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 given the county's strong revenue raising capacity and high reserves and history of strong market access.

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 3.6% of fiscal 2014 governmental spending. During fiscal 2013, the valuation rate was prudently lowered to 7% which reduced the funded ratio to a still adequate 71.8% 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 17.8% based on actuarial asset values of \$293 million and an accrued liability of \$1.6 billion. Total carrying costs for debt service, pension ARCs and OPEB contributions made were moderate at 15.8% of total fiscal 2014 governmental spending.