OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following Howard County, Maryland (the county) general obligation (GO) bonds:

--$150.39 million consolidated public improvement (CPI) project and refunding bonds, 2016 series A (tax-exempt bonds);
--$35.9 million metropolitan district project and refunding bonds, 2016 series A (tax-exempt bonds);
--$1.75 million consolidated public improvement (CPI) project bonds, 2016 series B (taxable bonds).

Proceeds of the tax-exempt bond are being used to repay all of the county's outstanding GO bond anticipation notes and refund certain GO bonds. Proceeds of the taxable bonds are being used to finance a portion of the costs of capital projects. The bonds are expected to sell through competitive sale on March 15.

In addition, Fitch affirms the following ratings:

--Approximately $1.3 billion GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The consolidated public improvement and metropolitan district bonds are payable from the county's full faith and credit pledge and its unlimited taxing power.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: Prudent management and planning underscore the county's financial performance and adequate reserves and temper the risk to the financial profile associated with income tax volatility.

STABLE AND WEALTHY ECONOMIC BASE: Low levels of unemployment and robust income indicators reflect the quality of the local labor force, the county's favorable location along the Baltimore-Washington, D.C. corridor, and proximity to the federal government and the extensive presence of its contractors.

MODERATE DEBT PROFILE: The county has maintained a stable and moderate debt burden through the use general fund reserves in lieu of bonding.

CARRYING COSTS ARE LOW: Carrying costs including debt service, pension and other post-employment benefits (OPEB) are expected to remain low given an affordable capital improvement plan (CIP), declining pension cost projections, a growing taxable base.

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 Rating Outlook reflect Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Howard County, Maryland is 251 square miles in area and is home to approximately 304,934 residents as of 2014. The county is located between Baltimore, MD and Washington, D.C.

SOUND RESERVE LEVELS

Underspending and positive budget variances in other revenue streams have enabled the county to maintain sound reserves despite a slowing in income tax revenue growth. Operations reflect income tax revenue results $13.8 million under budget due mainly to the fluctuations in the income tax paid on capital gains. Fiscal 2015 ended with a net operating deficit after transfers of roughly $27 million (2.7% of spending), less than the $43.6 million budgeted appropriation. The unrestricted general fund balance totaled $99.6 million, or an adequate 9.9% of spending. Despite the intentional use of reserves in recent years for capital spending in order to reduce debt, management plans to continue to meet its 7% unassigned general fund reserve fund balance policy, which Fitch believes is sufficient for the rating.

The approved fiscal 2016 general fund budget is $1 billion. The budget is a decrease of $15.2 million or 1.5% from the fiscal 2015 approved budget. The fiscal 2015 budget included a $43.7 million use of fund balance for one-time initiatives that has been excluded from the current budget. Year-to-date results show revenues (including income tax revenues) about 1% over budget and expenditures in-line with budget. Management is projecting a $5.2 million addition to fund balance. The county prepares a multi-year financial forecast to identify and address future fiscal challenges, which Fitch views as a positive. The forecast shows balanced operations with modest use (less than 1% of spending) of fund balance.

The county relies mostly on property tax (50%) and income tax revenue (42%) for general fund operations. The county's property tax rate and levy are not subject to statutory or charter limitation or cap, but it is high for the region. The county's income tax rate is at the 3.2% cap.

DEEP ECONOMIC BASE

The county is among the wealthiest in the nation, featuring a highly educated workforce. Residents are employed throughout a deep and diverse economy, led by the federal government. Fort Meade, located in Anne Arundel (rated 'AA+', Stable Outlook), is a major driver of long-term regional growth and Maryland's top employer. The fort, already a home base to all five military services and the National Security Agency, has been named the headquarters for the U.S. cyber-security center. The county estimates that federal agencies located at Fort Meade employ approximately 12,500 county residents and over 40,000 county residents have jobs attributed to the fort's mission.

The education and healthcare sectors, led by John Hopkins University Applied Physics Laboratory, play a pivotal role in the economy and lend additional stability to the government sector. While employment growth has slowed, the county continues to generate and retain jobs through its economic development efforts. The county's December 2015 unemployment rate of 3.3% is well below the state and national averages.

Economic development activities are focused on the redevelopment program of downtown Columbia. The program includes a hotel/conference center, retail, residential and office space.

FAVORABLE DEBT PROFILE

Debt levels are moderate overall at $3,694 per capita and 2.5% of market value, net of self-supporting GO debt for water and sewer projects. Amortization of tax-supported debt is above-average at 64% within 10 years.

Fitch expects the county's debt burden to remain manageable. The county has adopted a fiscal 2016-2020 capital improvement plan (CIP) totaling $1.7 billion, excluding approximately $260 million of self-supporting water and sewer projects. The county's education system remains the emphasis of the CIP, accounting for approximately $856 million. The plan is mostly debt funded ($1.2 billion). Given the rapid amortization and strong projected tax base growth, Fitch expects debt ratios to increase but remain in the moderate range. The current plan would essentially double the current debt burden; however, management will limit total debt service to 10% of revenue.

OTHER LONG-TERM LIABILITY COSTS ARE LOW

Long-term liabilities related to employment benefits are not expected to pressure future operations. The county provides pension benefits to its employees through single-employer defined benefit plans and annually contributes 100% of the required contribution. As of July 1, 2015, the general employees' plan was funded at 93.8% and police and fire employees' at 81.8%. Fitch estimates the funded ratios at approximately 88.9% and 77.5%, respectively, using Fitch's more conservative 7% discount rate compared to the county's rate of 7.5%. The aggregate adjusted net pension liability totaled $169.6 million or a very low 0.3% of market value.

The county also provides other post-employment benefits (OPEB) to its retirees. The county funded its OPEB cost for fiscal 2015 on a pay-go basis and made a contribution ($15 million) to pre-fund the liability, bringing the funded ratio to a modest 9.2%. County management expects to begin fully funding the OPEB ARC by 2020, which Fitch believes is attainable. The UAAL associated with OPEB totals $533.6620 million or 1% of market value. Carrying costs for debt service, pension (including teachers' pension costs) and OPEB totaled a low 12.7% of fiscal 2015 governmental fund spending.