OREANDA-NEWS. Fitch Ratings assigns an 'AA+' rating to the following Spotsylvania County, Virginia (the county) general obligation (GO) bonds:

--$49 million GO public improvement and refunding bonds, series 2015.

The bonds are expected to sell competitively on July 28. Bond proceeds will be used to fund certain road and rail transportation, public safety and general government and public school projects. Proceeds will also advance refund all or a portion of the series 2007 bonds for debt service savings.

In addition, Fitch affirms the following ratings:

--$154.2 million GO bonds at 'AA+';
--$69.2 million Economic Development Authority of Spotsylvania County public facilities revenue bonds, series 2011, 2012 and 2014 at 'AA'.

The Rating Outlook is Stable.

SECURITY
The GO bonds are backed by the county's full faith and credit and unlimited ad valorem taxing ability.

The lease revenue bonds are limited obligations of the EDA of the county of Spotsylvania, VA, payable solely from payments to be made by the county to the trustee. Payments are subject to annual appropriation by the county board. The deed of trust includes a security interest in essential school and county facilities.

KEY RATING DRIVERS

SOLID FINANCIAL RESULTS: Strong financial performance is evidenced by the county's consistent maintenance of reserves above the prudent general fund balance policy level.

ECONOMY TIED TO REGIONAL CENTERS: The local economy relies on the nearby job markets of the Washington, D.C. area, where the majority of county residents commute for employment. Defense contracting and healthcare sectors continue to develop in the county, aided by growth initiatives and positive workforce characteristics. Economic indicators are positive.
LOW-RISK DEBT PROFILE: Overall debt levels are moderately low and amortization of direct debt principal is rapid. Future capital plans are manageable. The county demonstrates a firm commitment to pay-go financing. Pension and other post-employment benefit (OPEB) burdens are modest.

APPROPRIATION RISK AND ESSENTIAL LEASED ASSETS: The 'AA' rating on the revenue bonds is one notch lower than the county's GO rating, reflecting risk to annual appropriation partially offset by a leasehold interest in essential educational assets.

RATING SENSITIVITIES

STRONG FINANCIAL MANAGEMENT: Financial flexibility continues to be ample with healthy fund balance levels as a result of conservative budgeting practices. Although not expected, material weakening of the county's financial flexibility could result in a rating change.

CREDIT PROFILE

The county is located in the northeastern section of Virginia approximately 55 miles north of Richmond and 55 miles south of Washington, D.C. The county's estimated 2014 population is 129,188, which is a 5.5% increase from 2010.

STRONG RESERVE LEVELS

Unrestricted general fund balance levels have historically remained sound and above the county's fund balance policy. The policy stipulates maintenance of an unassigned fund balance equal to no less than 10% of the subsequent fiscal year's budgeted net operating revenue. Net operating revenue includes total general fund revenue plus total component unit (school board) general operating revenue. The county has traditionally used a portion of fund balance in excess of its 10% policy for capital expenditures.

Fiscal 2014 ended with a $1.8 million (0.7% of spending) operating surplus for the fourth time in five consecutive years. The surplus is net of a $9.8 million transfer to the capital projects fund. At year-end, the unrestricted general fund balance totaled an ample $55.5 million or 23% of spending. The capital projects fund at year-end 2014 had a balance of $15 million net of bond proceeds, which could be used as additional reserves with board approval.

In addition to a healthy reserve balance, the county retains the flexibility to raise revenues, as its $0.86 millage rate per $100 assessed value remains regionally competitive and expenditure cuts to date have been modest. Liquidity is sound when Fitch adjusts for property tax revenues that have been deferred.

ESTIMATED FISCAL 2015 RESULTS SHOW FUND BALANCE USE FOR CAPITAL

The 2015 budget was 2.6% higher than fiscal 2014 and provided $1 million for a 2% COLA, additional full-time positions, $8.4 million in capital spending and a $1.6 million increase in the transfer to the school system. The budget kept the real property tax rate stable but increased the personal property tax rate to offset declines in vehicle values. The budget appropriated a modest $2.4 million (1% of general fund spending) for non-recurring expenses. Year-to-date operations show a higher $3.7 million use of reserves with the majority of the use being for capital spending. Reserves will remain ample despite the draw.

ADOPTED FISCAL 2016 BUDGET

The 2016 budget is 5% higher than fiscal 2015 budget and provides an increase in county staff and teachers' salaries, and additional full-time positions related to the opening of a new fire station. The budget keeps the real property tax rate stable and appropriates $3.2 million of fund balance. Given the county's history of strong financial performance, Fitch expects operations to remain positive and reserves to remain in compliance with policy.

Property taxes are the county's primary revenue source. Following a decline of 2.9% in 2012 and 20% in fiscal 2010, the county's tax base has begun to recover with a cumulative 4.7% increase in taxable assessed value in 2013 and 2014. Management is projecting a 1%-2% increase in 2015, which is supported by recent permit activity.

PROXIMITY TO WASHINGTON, D.C.

Located on the I-95 corridor, Spotsylvania County functions as a bedroom community for the Washington, D.C. area, with approximately 12% of the labor force employed by the federal government. Approximately 75% of county residents commute outside of the county for work despite the county's implementation of several initiatives to foster local employment opportunities.

Economic indicators for the county are positive. Per capita income levels are 11% higher than those of the nation, and median household income levels are 48% higher. As has been the historical norm, the county's unemployment rate (5.2% as of March 2015) remains below that of the nation.

CONTINUED DIVERSIFICATION OF LOCAL ECONOMY

The county has experienced growth in its employment base due to the its economic incentives, availability of land, and skilled workforce. The county's target industries include healthcare, manufacturing, high-tech/IT/defense and tourism.

Spotsylvania Regional Medical Center is the county's largest private employer and healthcare is the second fastest growing industry. EOIR Technologies, an industry leading system design and development company staffed with 220 employees in Spotsylvania, was awarded the prime contractor for a $3.5 million contract in support of the U.S. Army Research, Development and Engineering Command (RDECOM). Tourism continues to be a key industry within the county given the county's civil war historic sites and battlefields. In 2013, visitors to the county generated approximately $247 million in overall economic value. Growth is expected to be further spurred by the construction of a Virginia Railway Express Spotsylvania commuter rail station that will go directly into Washington D.C. Construction on the station is expected to be completed by early September 2015.

MODERATELY LOW DEBT LEVELS

The county's debt profile is moderately low, with net overall debt equal to $2,291 per capita and 2% of market value (MV), below the county's 3%-4% policy. Debt service as a percentage of total governmental fund spending in fiscal 2014 was sizable at approximately 14.4%, although principal amortization is rapid at 73% in 10 years.

The county's capital needs appear manageable. The fiscal 2016-2020 capital improvement program (CIP) totals $237.6 million (1.6% of MV). School projects represent the majority of the plan ($111.9 million), followed by government facilities ($29 million), transportation ($66 million) and other projects ($30.8 million). Approximately 78% of the CIP is funded through debt, with a sizeable portion (21%) funded from pay-go sources.

Fitch views the county's firm commitment to pay-go financing as a credit positive. The county has been steadily working towards fulfillment of its policy to transfer 5% of general fund revenues to the capital projects fund, increasing transfers by a quarter-percent every year until the policy is achieved. The county is currently at the 3% floor.

LOW PENSION AND OTHER LONG-TERM LIABILITIES

Pension and OPEB contributions do not stress financial operations. County employees participate in the state-wide Virginia Retirement System, an agent multi-employer defined benefit plan. The county makes annual payments as determined by the state that equal its annual required contribution. The county's portion of the plan is well funded at 84% reflecting the plan's assumed 7% investment return assumption. The fiscal 2014 $6.8 million ARC equaled a modest 2.7% of total governmental spending.

OPEB is currently funded on a pay-go basis, although the county did establish a reserve with $826,000 in fiscal 2015. The unfunded actuarially accrued liability ($55.9 million) represents less than 1% of MV. Despite the sizable debt service payments, carrying costs (debt service, OPEB and pension costs) are manageable at 17.4% of governmental fund spending.