OREANDA-NEWS. Fitch Ratings has affirmed the following town of Cary, NC (the town) bonds:

--$190.72 million general obligation (GO) bonds series 2006, 2009A, 2009B, 2010A, 2010B, 2014 at 'AAA';
--$10.38 million limited obligation refunding bonds (LOBs) series 2010 at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by a pledge of the full faith and credit and unlimited taxing power of the town.

The LOBs are payable from lease payments made by the town under an installment financing agreement in an amount sufficient to meet debt service requirements on the debt, subject to annual appropriation by the town. Additionally, a deed of trust provides a security interest by granting a lien on properties within the town hall campus.

KEY RATING DRIVERS

SUPERIOR FINANCIAL FLEXIBILITY: Financial flexibility is exceptional, including very high reserve levels and balance sheet liquidity, and ample revenue raising capacity. The town has a track record of conservative budgeting that consistently yields surplus operating results.

STRONG ECONOMIC BASE: The town's economy is strong and has excellent long-term potential for continued growth and development, combining the stability of the nearby state capital and a large higher education sector with the specialized high-technology industry.

AFFORDABLE DEBT AND SOUND POLICIES: The overall debt burden is moderate while the town continues to adhere to conservative financial and debt policies.

SOUND LEASE ASSET ESSENTIALITY: The LOB rating is notched down from the town's GO rating, which reflects Fitch's assessment of the risk of non-appropriation, limited bondholder remedies in the event of a default, and the essential nature of the town properties subject to the deed of trust.

RATING SENSITIVITIES

MAINTENANCE OF STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the town's strong financial management practices and compliance with prudent fund balance and debt service policies. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Cary is located in central North Carolina, directly west of Raleigh, the state capital. The town has an estimated 2014 population of 155,227.

STRONG ECONOMIC BASE

Cary's economy benefits from strong local commercial and employment bases as well as its proximity to Raleigh and the Research Triangle Park, a campus of 17 biotechnology firms with roughly 49,000 jobs. The area is also home to several colleges and universities and major healthcare facilities, which tend to attract private-sector investment.

The town's commercial presence includes SAS Institute, Inc., the world's largest privately held software company, as well as other technology and medical related employers. Recent expansions include MetLife, which opened a technology center in the town that now employs 1,000 high-salary positions, and HCL Technologies, an Indian IT service firm that hired 300 new employees with 700 more hires expected. HCL is now a top 10 employer in the town with over 500 employees working in Cary.

The town's unemployment rate has decreased to 3.7% in November 2015 and remains well below state and national averages. Income levels are well above state and national averages, reflecting the town's highly educated workforce.

SUPERIOR FINANCIAL FLEXIBILITY

Financial management is very strong, as evidenced by high fund balances, stringent fiscal policies and conservative budgeting. Fiscal 2015 ended with a general fund net operating surplus after transfers of $668 thousand (0.5% of spending). The unrestricted general fund balance increased to $76.4 million, or 52.8% of spending. The town's reserve by state statute, which is primarily to offset accounts receivable, is a source of additional financial flexibility. This reserve totaled $16.1 million, or an additional 11% of general fund spending, and brings the available fund balance to $92.5 million.

The town's fiscal 2016 budget has increased by $10 million, or about 7%, year-over-year. The budget includes an appropriation of fund balance of $4.6 million, largely attributable to the nearly $10 million spending for one-time capital projects. The town historically practices conservative budgeting. Preliminary estimates for fiscal 2016 are positive and revenues and expenditures look to be on a trajectory similar to fiscal 2015, which ended in surplus operations.

The budget includes an ad valorem tax rate increase of $0.02 to pay the debt service associated with issuing the remaining GO debt approved by the voters in 2012. The new tax rate will be $0.37 per $100 assessed valuation (AV), considerably lower than the $1.50 statutory cap. The town's tax rate is regionally competitive and the lowest in Wake County.

AFFORDABLE OVERALL DEBT

Overall debt levels are moderate at 2.3% of market value and approximately $3,588 per capita. A new debt issue is expected in fall 2016 of $35.6 million to fund transportation, parks and fire projects. Maximum annual debt service including the proposed debt will be reached in fiscal 2017 at $19.7 million. This projected debt service is 35% higher than fiscal 2015's debt service of $14.4 million (currently an affordable 9.1% of governmental spending).

The $0.02 tax increase noted above will fund the additional debt. Debt ratios should remain affordable given the town's very limited other future borrowing plans and healthy pace of principal amortization. The town is scheduled to pay down 80% of net direct debt within 10 years and will remain in compliance with their policy to keep debt service below 15% of budgeted expenditures.

Variable rate debt of $34.7 million accounts for an above average 21% of the town's net direct debt. The variable rate bonds were issued in 2006, will fall below 20% of outstanding debt for the first time in fiscal 2017, and are scheduled to mature in 2027. The town conservatively budgets its variable rate interest expense, and its robust reserves and broad revenue flexibility further serve to mitigate this risk.

LIMITED OTHER LONG-TERM LIABILITIES

The majority of town employees participate in the well-funded North Carolina Local Governmental Employees' Retirement System (LGERS), a cost-sharing multiple-employer plan. The town also administers a single-employer pension plan to provide retirement benefits to qualified sworn law enforcement officers. Between both plans, the town's total fiscal 2015 pension contribution was an affordable $5.4 million or 3.4% of governmental spending. This contribution was 96% of the actuarially determined contribution (ADC) due to the town only contributing roughly half of the ADC for the much smaller officer's plan. The town has increased their contribution to 100% of the ADC in the fiscal 2016 budget. Combined, the pension plans are estimated to be 99% funded after adjusting for Fitch's more conservative 7% investment return assumption.

The town offers other post-employment benefits (OPEB) and pays its costs on a pay-go basis. In fiscal 2015, the town contributed $1.4 million for its OPEB costs. The town's payment was equal to 0.9% of total spending and full funding of the fiscal 2015 OPEB annual required contribution was equivalent to 5.3% of spending. The unfunded actuarially accrued liability is less than 1% of market value.

Total carrying costs for debt service, pension and OPEB combined equal a low 13.6% of governmental fund expenditures.