Fitch Affirms Tulare County, CA’s POBs & COPs at ‘A+’; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- As part of its continuous surveillance effort, Fitch Ratings takes the following rating actions on Tulare County, California (the county):

--Implied general obligation (GO) assigned at 'AA-';
--$6.3 million 1997 pension obligation bonds (POBs) affirmed at 'A+';
--$26.3 million 1998 certificates of participation (COPs) affirmed at 'A+'.

The Rating Outlook is Stable.

RATING RATIONALE:
--Tulare County's economy is primarily based on agriculture, with correspondingly low income and wealth levels, as well as high unemployment.
--The unreserved general fund balance has rebounded and is expected to remain at a moderate level.
--Management has responded promptly to revenue shortfalls, resulting in reduced expenditures and balanced operations.
--The county's long-term obligations are very limited. Debt levels are low and amortize rapidly, while retiree benefit costs are relatively modest.

KEY RATING DRIVERS:
--Stability of financial operations and unreserved fund balance levels.
--Change in weak economic characteristics.
--Continued manageable long-term liabilities.

SECURITY:
The POBs are an absolute and unconditional obligation of the county, repayment of which is not limited to any special source of funds. The COPs are secured by the county's lease payments for the use and possession of various criminal justice and administrative facilities and are subject to annual appropriation and abatement.

CREDIT SUMMARY:
Tulare County is located near the geographic center of California and has a population of approximately 430,000. The county's borders stretch from the Central Valley to the peaks of the Sierra Nevada mountains, and include large portions of national forests and parklands. The local economy is concentrated in the agricultural sector and Tulare County is the largest producer of dairy products in the U.S., accounting for more than 5% of milk production nationally. Consistent with this agricultural context, median household income levels are low, at 71% of the state average. The county's unemployment rate traditionally exceeds the state average and was 18% in February 2011, nearly twice the national rate and down only slightly from 18.8% in February 2010. Population growth has been relatively high since 2000, averaging 1.7% per year.

Assessed value (AV) has been volatile over the last several years. While AV rose rapidly prior to the recent recession, it declined in 2010, contributing to a 2% decline in general fund revenues. Overall revenues have continued to decline in 2011, and management does not anticipate revenue increases over the next few years.

Rising property tax delinquencies in recent years required Tulare County to substantially increase its loss reserves for the Teeter Plan, a program that permits California counties to provide local taxing jurisdictions with the full amount of property taxes levied on their behalf. The increase in reserves resulted in sharp declines in unreserved general fund balance in fiscal years 2008 and 2009. In fiscal year 2010 Tulare County exited the Teeter program, which freed up $12 million in general fund reserved balance. In addition, changes in the accounting treatment of state and federal grants provided a further $21 million increase in unreserved general fund balance, 60% of the 2010 increase. Despite these improvements, the unreserved general fund balance at the end of fiscal 2010 was at a fairly modest 6% of spending.

Tulare County has addressed its recent fiscal challenges with a variety of cost control measures. County management has deferred all merit and step salary increases, frozen hiring, and imposed a mandatory furlough on employees of one week per year. The county expects to finish fiscal year 2011 within budget and anticipates an increase to its budgetary reserve at year end, reducing the level of cuts required to meet further likely revenue declines in 2012.

Debt levels are notably low, with overall debt at $1,005 per capita or 1.5% of AV, and 88% of principal amortizes within five years. The county allows retired employees to participate in its group health insurance plan at their own cost, but provides no direct other post-employment benefits, while the pension plan was funded at the relatively high level of 92% as of June 30, 2010.

Additional information is available at 'www.fitchratings.com'

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, National Association of Realtors

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 08, 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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Fitch Ratings
Primary AnalystStephen Walsh, +1-415-732-7573
Director
Fitch, Inc.
650 California Street, 4th floor
San Francisco, CA 94108
or
Secondary AnalystKaren Ribble, +1-415-732-5611
Senior Director
or
Committee ChairpersonAmy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:Cindy Stoller, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings