OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following Talbot County, Maryland bonds:

--\\$17.13 million public improvement refunding bonds, series 2015.

The bonds are expected to sell competitively on July 7.

In addition, Fitch affirms the following ratings:

--\\$38 million outstanding GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY
The bonds are a full faith and credit obligation of Talbot County, payable from ad valorem taxes on all taxable property within the county. The annual property tax levy is subject to a growth limitation set out in the county charter (the lesser of 2% or the consumer price index).

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: The county's strong financial position is characterized by conservative budgeting practices, revenue flexibility and ample liquidity. Prudent and timely revenue enhancements have restored structural balance after a period of revenue weakness.

RURAL BUT STABLE ECONOMY: The county's rural economy is dominated by agriculture, tourism, and healthcare. Wealth levels are above the national average.

LOW DEBT LEVELS: Debt levels are expected to remain low given the county's limited capital needs. Retiree costs are modest and do not pressure spending.

RATING SENSITIVITIES

MAINTENANCE OF STRUCTURAL BALANCE: Based on the county's history of timely revenue enhancements, structural balance is expected to be maintained over the coming review cycle.

CREDIT PROFILE
The county is located on the western shore of the DelMarVa Peninsula, about 50 miles east of Washington, DC. The county's estimated population as of 2014 was 37,643, a less than 1% decline since 2010.

STRONG FINANCIAL POSITION
Following several years of operating deficits due to weak revenue performance, the county prudently adjusted both revenues and expenses to regain structural balance. These efforts resulted in surplus operations in both fiscal 2013 and 2014. Fiscal 2014 ended with a \\$1.3 million operating surplus (1.7% of spending). The county posted \\$20.77 million in unrestricted general fund balance at fiscal 2014 year-end, a healthy 26.7% of spending. The county consistently exceeds its fund balance policy, which calls for unrestricted general fund reserves to exceed 15% of spending.

The county held roughly \\$10.1 million in committed reserves in a capital projects fund at year-end 2014 (comprised of prior surpluses from the general fund). These reserves can be used with council approval for general fund purposes, adding to operational flexibility.

DEMONSTRATED REVENUE FLEXIBILITY Layoffs, pay freezes, and furloughs helped control expense growth as management addressed the recent budgetary imbalance. The county also utilized some of its revenue flexibility by raising the local income tax rate in fiscal 2013 from 2.25% to 2.4%.

In addition, the county has been able to increase the property tax rate annually between 2012 and 2016 (while staying within the annual tax revenue cap). The county's property tax rate remains the lowest for any county in the state and the income tax rate is still well below its 3.2% cap providing the county with further revenue flexibility if necessary.

The county projects a \\$3 million surplus for fiscal 2015, which Fitch believes is reasonable given the budgeted \\$661,200 surplus and its history of conservative revenue/expenditure assumptions; the county's fiscal year end is June 30. The county's fiscal 2016 general fund budget is operationally balanced and includes a manageable \\$1.26 million appropriation of reserves for one-time outlays. While no formal plan has been implemented, management plans to continue to rebuild fund balances drawn down during the recession.

LIMITED LOCAL ECONOMY
The county is predominantly rural, with farmland comprising nearly 60% of its area. While agriculture is economically important, the county's main attraction is its 600 miles of shoreline; the leisure and hospitality industries represent an important share of the employment base.

In addition to hospitality and tourism, healthcare is another important economic sector as evidenced by Shore Regional Health, a member of the University of Maryland Medical System, accounting for about 10% of county employment. Fitch believes that the long-term prospects for the facility are positive, as University of Maryland Shore Medical Center at Easton serves an important regional need and continues to expand its operations.

The county's unemployment rate decreased to 5.9% in March 2015 from 6.3% a year prior. Both employment and labor force totals declined over this period, possibly attributable to the county's sizable and growing retiree population and high median age.

FAVORABLE DEBT PROFILE
Overall debt levels are low at roughly \\$2,034 per capita and 0.9% of market value. Amortization is rapid, with 77% of principal retired in 10 years. The county's \\$23.7 million capital improvement plan is somewhat of a wish list. The county does not have any borrowing plans to fund the projects included in the plan, planning instead to finance the projects primarily from grants.

MODEST PENSION AND OPEB COSTS
Long-term liabilities related to employment benefits are not expected to pressure future operations. The county provides pension benefits to its employees through the State of Maryland Employees Retirement and Pension System (SMERPS). The county also funds the current portion of pension costs for board of education employees through the State of Maryland Teachers Retirement and Pension System (SMTRSP). The county consistently pays 100% of its combined required contributions, which accounted for a low 3.4% of fiscal 2014 total governmental spending.

The county also provides OPEB to its retirees, and the county's unfunded OPEB liability is low at .04% of market value. The county has contributed a cumulative \\$9 million in earmarked general fund reserves to an OPEB trust over the past four fiscal years in an effort to prefund the OPEB liability, which Fitch views favorably. OPEB liabilities are 75% funded. Total carrying costs, including debt service and costs related to post-retirement benefits, were very low at only 6.7% of total governmental spending in fiscal 2014.