Fitch Affirms St. Louis County, Missouri GO & Appropriation Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings for the following series of St. Louis County, Missouri bonds:

--$26.1 million general obligation (GO) refunding bonds, series 1998 at 'AAA';

--$14.75 millionLambert Airport eastern perimeter redevelopment project - RPA 1 annual appropriation supported tax increment revenue bonds series 2006A at 'AA'.

In addition, Fitch affirms the following rating:

--$43.9 million Missouri Development Finance Board St. Louis Cardinals ballpark project bonds, series 2003 at 'AA'.

The Rating Outlook is Stable.

SECURITY

General obligation bonds are secured by the county's full faith and credit and its ad valorem taxing power, without limitation as to rate or amount. The Lambert Airport TIF bonds are payable from payments in lieu of taxes (PILOTS) and an economic activity tax (EAT), which is 50% of any additional revenues from economic activity taxes transacted within the TIF. Additionally, the county has agreed to allocate sufficient general funds to pay debt service, subject to annual appropriation, if the PILOTS and EAT revenues are insufficient. The St. Louis Cardinals ballpark project bonds are payable from amounts annually appropriated by St. Louis County.

KEY RATING DRIVERS

DIVERSE ECONOMIC BASE: The diverse economic base provides substantial employment opportunities for county residents in a variety of higher wage sectors.

ABOVE-AVERAGE SOCIOECONOMIC PROFILE: Wealth levels are above-average, both on a per capita income and market value per capita basis.

STRONG FINANCIAL MARGINS: Financial margins have been strong historically, although moderate draws on the ample general fund balance are projected.

LOW DEBT LEVELS: Debt levels are low and future borrowing plans are manageable.

APPROPRIATION RISK: The 'AA' rated TIF and ballpark project bonds are secured by payments which are subject to annual appropriation by the county.

CREDIT PROFILE

DIVERSE ECONOMIC BASE

St. Louis County has a well developed economic base, which continues to diversify away from manufacturing, thus shielding the economy from large cyclical swings in the manufacturing sector. The regional economy's employment base consists of a higher percentage of both professional services and educational and health services as a percentage of total employment than the national average. Major employers include Boeing Co. with roughly 15,600 employees, Washington University (13,500), SSM Health Care System (12,500), Schnuck Markets, Inc. (11,000), and St. John's Mercy Health Care (8,900).

Taxable value declined in 2009 and 2010, the first such declines in 80 years. The tax base is diverse with the top 10 property taxpayers accounting for 5.2% of total assessed valuation. County unemployment has decreased over the last year, and is now below the national unemployment rate. The decline in the seasonally unadjusted rate from 9.5% in September 2010 to 8.4% in September 2011 comes as jobs growth has outpaced growth in the labor force.

ABOVE-AVERAGE SOCIOECONOMIC PROFILE

Wealth levels are above average with 2010 county per capita income levels equaling 136% and 123% of the state and national averages, respectively. County residents are well-educated with 38.5% achieving higher education versus 27.5% for the national average. Full market value remains above average at $103,000 per capita.

STRONG FINANCIAL MARGINS

The county has exhibited strong financial performance with ending unreserved general fund balances exceeding 24% of spending for at least the last five years. For 2010, the county ended the year with a $107.9 million unreserved general fund balance, or 32.8% of general fund expenditures. The 2011 revised budget anticipates an $11.7 million reduction in general fund balance. Fitch notes that the county's cash-basis projections often result in more favorable final results on a GAAP-basis; nevertheless, if the county were to realize an $11.7 million draw on general fund balance, reserve levels would still remain strong at approximately 29% of spending.

Management has taken steps to control expenditure growth, including a hiring freeze, wage freeze, and limitations on travel, which have contributed to financial stability. The preliminary 2012 budget includes unpopular measures, including steep cuts in the area of parks and recreation, facility closures, service cuts, fee increases and elimination of 170 positions, including 50 layoffs to close the reported $10 million revenue gap. Officials continue to negotiate the details of the plan, but Fitch expects the budget to provide a prudent spending plan commensurate with the 'AAA' rating.

LOW DEBT LEVELS

The debt burden is low as a result of strong internal capital funding practices. Direct debt, including annual appropriation debt, equals $438 per capita and 0.4% of full market value. Overlapping borrowing lifts overall net debt totals $1,822 per capita or 1.8% of full market value. Future borrowing plans are moderate and include a $2 million borrowing in 2012 for new police precinct, replacement of fuel tanks and IT projects. In April, the county will seek ballot approval for $100 million of new general obligation debt for a new family court building and remodelling of the current court building.

The TIF and ballpark project bonds are subject to annual appropriation. Each series has an identified revenue stream from which the county makes payments. Recently these revenue streams have declined, and no longer provide 1.0 times coverage of annual debt service. The county continues to appropriate from accumulated reserves to make up the shortfall. The 'AA' rating reflects Fitch's expectation that the county will continue to make the appropriations, from these or any other sources, as necessary.

The county offers pension benefits to all county employees and commissioned police officers through the St. Louis County, Missouri County Employee Retirement Plan, a single-employer, noncontributory, defined benefit plan. The county routinely makes its full annual required contribution, which in fiscal 2010 equated to 10% of general fund spending. The civilian portion of the plan reports a 75% funding ratio, or 67.6% when adjusted by Fitch to reflect a 7% discount rate. The police portion of the plan reports a 70.9% funding ratio, or a Fitch-adjusted 63.9%.

The county's OPEB liability was limited to an implicit rate subsidy until the 2009 plan year when all current and future retirees were required to contribute the entire premium to cover the current cost of retiree health insurance premiums. The implicit rate subsidy has been eliminated as a result of this change, and no unfunded liability is accrued.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary AnalystArlene Bohner, +1-212-908-0554
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary AnalystLarry Levitz, +1-212-908-9174
Director
or
Committee ChairpersonChris Hessenthaler, +1-212-908-0773
Senior Director
or
Media RelationsSandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings