OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following Maryland-National Parks and Planning Commission (MNCPPC) bonds:

--$24.8 million Prince George's County general obligation (GO) park acquisition and development project and refunding bonds series PGC-2015A.

Proceeds of the bonds will be used to fund park acquisition and development projects in Prince George's County (the county), Maryland and refund certain outstanding bonds. The bonds are scheduled for sale on Oct. 15, 2015.

In addition, Fitch affirms the following ratings:

--$52 million Prince George's County MNCPPC GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of both the commission and the county, to which the full faith and credit of each is pledged. The bonds are payable in the first instance from proceeds of limited annual ad valorem taxes that the county is required to levy in the Maryland-Washington Metropolitan District in the county (the metropolitan district) pursuant to state law.

KEY RATING DRIVERS

CREDIT STRENGTHS OF MNCPPC AND PRINCE GEORGE'S COUNTY: The 'AAA' rating reflects the creditworthiness of both MNCPPC and county. Given the double-barrel pledge, if at any point in the future the ratings of the entities diverge, the rating on the commission bonds should always reflect the higher of the two ratings.

MNCPPC CREDIT PROFILE: The commission's 'AAA' GO credit profile reflects a history of healthy financial performance, low debt and strong financial policies. The commission's limited programmatic mission is centered on the acquisition, operation, and maintenance of a sizeable and highly regarded regional parks system.

SIGNIFICANT DEBT SERVICE COVERAGE: Proceeds from a state-mandated limited ad valorem tax are dedicated first to the repayment of MNCPPC bond principal. Revenues provide ample debt service coverage.

WELL MANAGED DEBT: Overall commission debt levels are low and the aggressive amortization of outstanding principal affords the commission future financing flexibility.

DIVERSE AND EXPANDING ECONOMY: The county benefits from its central location in the national capital region and its well-developed transportation infrastructure, attracting a strong economic base centered upon vital government operations, healthcare and higher education. The county's relatively low unemployment rate underscores the economic strengths.

SOUND FINANCIAL PERFORMANCE: Maintenance of financial resources and flexibility is a key rating driver for the commission, given the limitations of its operating and governing structure. A decline in reserve levels is expected over time based on the parks and planning initiatives but will remain adequate.

RATING SENSITIVITIES

SHIFTS IN FUNDAMENTALS: The rating is sensitive to shifts in currently sound credit profiles (e.g. sound operations, financial management and reserves) of both the county and commission, given the double-barrel pledge.

CREDIT PROFILE

FOCUSED MANDATE

The MNCPPC is a bi-county agency, empowered to plan, acquire, develop, maintain and administer a regional system of parks of approximately 62,000 acres comprising nearly all of Prince George's County and Montgomery County. The commission also prepares and periodically reviews a general plan for the entire district including master plans for transportation, parks and open spaces and public facilities and also studies and makes recommendations with respect to all requested zoning applications.

The commission employs over 2,000 year-round employees and nearly 4,500 seasonal workers. Two regional offices are maintained, one in each county and the commission holds regular monthly meetings. Each county appoints a planning board to the commission to facilitate, review and administer the matters affecting their respective counties. The commission's major source of funding is property taxes levied on an individual county basis. Separate accounts for each county are maintained within the commission's general fund for transparency purposes. Debt is issued separately for each county, not for the commission as a whole.

SIGNIFICANT PLEDGED REVENUES

State law requires the county to assess a levy of at least $0.04 per $100 of assessed value (AV) on all real property and at least $0.10 per $100 AV of all personal property located within the metropolitan district. The proceeds of this tax are pledged to the payment of debt service on all commission bonds issued on the county's behalf, with any amount not needed for debt service available to the commission for its authorized purposes. The county has no claim to revenues generated by this tax. MADS on the bonds consumes 32% of the 2016 budgeted mandatory levy. Debt service is descending, allowing for additional future flexibility.

NOTABLE ECONOMIC ACTIVITY

The county's own broad commercial base complements Washington D.C.'s diverse employment opportunities. Within the county, indispensable governmental bureaus and higher education, including Joint Base Andrews and the University of Maryland, provide economic stability.

Expansion continues on the mixed-use National Harbor project along the Potomac River. A $1.3 billion MGM-branded casino is expected to open at National Harbor in 2016, adding 4,000 permanent jobs. The county has approximately $700 million in other development projects in its pipeline that will add to the county's economic profile.

The unemployment rate routinely hovers around that of the state and national averages. The June 2015 unemployment rate of 5.4% is notably less than the 6.3% of the prior year; employment trends have continued to remain positive. Median household income is on par with the state and above the national average.

The recent national housing correction led to a cumulative 23% decline in the commission's Prince George's County assessable tax base. Assessed value increased 1.5% in 2015 and is expected to increase 2% in 2016. However, according to the most recent Zillow report, home values are forecasted to decline over the next year.

AMPLE FINANCIAL RESERVES

MNCPPC's financial position remains strong. In line with the commission's long-term goal to gradually reduce reserves to the 5% policy reserve level, fiscal year-end 2014 ended with a $32.8 million deficit; the decline was driven largely by a $24.2 million transfer to the capital projects fund for future capital spending. Despite the decline the balance in the unrestricted general fund (a combination of the administration, park and recreation fund) totaled approximately $188.2 million or an ample 72.1% of general fund operations.

Projected fiscal 2015 year-end results show a $23.2 million operating deficit which includes a $16 million transfer to the capital projects fund. The unrestricted balance is expected to remain ample at $138.9 million or 55% of general fund spending.

FISCAL 2016 BUDGET AND BEYOND

The fiscal 2016 general fund budget is a 4% decline over the fiscal 2015 original budget and includes a 1.5 cent tax rate increase, the first increase since 2004 to mitigate declining property tax revenue. The budget also includes a reduction in project charges paid to the county.
The commission's multi-year financial forecast shows a negative total general fund balance position at fiscal year-end 2022 of approximately $19 million or 6% of spending. Given the commission's ability to make programmatic changes, generate additional revenues by increasing the tax rate, and its history of conservative budgeting it is expected that the commission will maintain reserves at or above the 5% fund balance policy minimum.

MANAGEABLE DEBT AND CAPITAL NEEDS

Commission debt levels are expected to remain low given the commission's rapid amortization rate and modest plans for additional borrowing. The commission evaluates its capital needs with input from the county, the state, and local residents. The six year fiscal 2016 - 2021 capital improvement plan (CIP) related to Prince George's County totals $89.6 million with development projects accounting for approximately 80% and land acquisition making up the remainder. Amortization of outstanding debt is rapid with over 77% of principal scheduled to be retired within the next 10 years and 100% in 14 years.

Commission pension and other post-employment benefits (OPEB) are well-managed. The commission's pension plan is funded at 84% using the Fitch-adjusted investment rate of return of 7%. The unfunded accrued liability is moderate at an adjusted $908 million or 1.2% of market value.

The commission continues to prefund its OPEB liability. As of the July 2014 valuation report the liability was 13.6% funded. Carrying costs, which include debt service, pension and OPEB costs accounted for a low 15.2% of fiscal 2014 general fund spending.

COUNTY OPERATIONS

County reserves remain satisfactory despite reductions over the past several years due to cost pressures mostly related to public safety and aggressive revenue budgeting. The county ended fiscal 2014 with a $58 million operating deficit. The unrestricted general fund balance at year-end was $138.7 million or 8% of spending, down from 12.5% a year prior.

Estimated fiscal 2015 year-end results show a $6.8 million operating deficit, with reserves approaching the county's 7% minimum reserve policy. The fiscal 2016 budget is a 3.3% ($95 million) increase over fiscal 2015. Most notably, the budget includes a $0.04 increase in the real property tax rate from $0.96 to $1 per $100 of assessable value.

The county is authorized to increase the real property tax rate based on Chapter 6 of the 2012 Laws of Maryland (Senate Bill 848). This law allows the County's property tax rate to be higher than the rate authorized under the County's charter for the sole purpose of funding the approved budget of the local school system. (See 'Fitch Rates Prince George's County, MD's $248.3 million GOs 'AAA'; Outlook Stable', dated Sept. 10, 2014 for additional information).