Fitch Rates Fulton County, Georgia’s $120MM TANs ‘F1+’; Affirms Outstanding Debt

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings takes the following action on Fulton County, Georgia's (the county) general obligation (GO) tax anticipation notes (TANs):

--$120 million general obligation (GO) tax anticipation notes, series 2010, rated 'F1+'.

Fitch also takes the following actions:

--$40 million Building Authority of Fulton County revenue refunding bonds, series 2002A, 2002B and 2002C, affirmed at 'AA+';

--$111 million Fulton County Facilities Corp. certificates of participation (COPs), series 2009, affirmed at 'AA'

Fitch also withdraws its 'AA' long-term rating for the following bond because it been prerefunded:

--Fulton County Facilities Corp. (GA) (Fulton County Public Purpose Project) COPs series 1999.

The correct rating history for the above bond is now reflected on Fitch's web site at 'www.fitchratings.com'.

The series 2010 TANs are scheduled to sell competitively on June 2 and will mature on Dec. 31, 2010. Proceeds will be used for county cash flow purposes.

The Rating Outlook for the outstanding revenue bonds and COPs is Stable.

RATING RATIONALE:

--The assignment of Fitch's highest short-term rating of 'F1+' to the county's TANs reflects satisfactory coverage of repayment in the last month of the calendar year, the availability of additional borrowable resources, and the county's conservative budgeting practices.

--The 'AA+' rating on the building authority's revenue bonds reflects strong legal provisions, insuring annual lease payments by the county, as well as the county's strong credit quality.

--The 'AA' rating on the COPs is based on the annually renewable lease structure and the essentiality of the majority of leased assets.

--The county's long-term credit characteristics include an exceptionally low debt burden and rapid amortization of existing debt, healthy general fund reserve levels, and a stable and diverse economic base.

KEY RATING DRIVERS:

--The county's ability to maintain its financial profile despite ongoing stress from the real estate market downturn and the continued challenge in gaining timely certification of the county's tax digest, which could both negatively impact the county's primary revenue stream;

--The county's partnership in the Fulton-Dekalb Hospital Authority, the parent organization of the Grady Health System (GHS, or the system), which remains a concern given the system's tenuous financial position.

SECURITY:

The TANs are general obligations of the county payable from revenue received by the county during calendar year 2010 as well as other available funds. The COPs issued by the Fulton County Facilities Corporation are secured by an annually renewable lease structure under which rental payments by the county are subject to appropriation. Bonds issued by the county's building authority are secured by a pledge of the building authority's interest in lease payments from the county under a separate lease agreement between the county and the building authority; the county's obligation to make lease payments is absolute and unconditional.

CREDIT SUMMARY:

The current TAN borrowing represents a sizeable 21% of budgeted general fund receipts, but is well below the statutory limit for cash flow borrowing of 75% of prior year's gross property tax income. Borrowings over the last two years are up significantly compared to historical par amounts, primarily to keep pace with annual growth in the budget. However, future TAN borrowing is expected to stay close to the current level. Property taxes, which represent almost 79% of projected cash flow receipts net of short-term borrowing for fiscal 2010, become delinquent after Oct. 15. Fulton County uses short-term cash flow borrowing to meet cash flow requirements in the earlier part of the fiscal year.

Projected receipts and borrowable resources in the capital projects, risk management, and insurance stabilization funds for fiscal 2010 cover TAN principal and interest by a healthy margin of 2.2 times (x). Projected coverage for fiscal 2010 is slightly below the prior year when additional cash balances from the county's water and sewer fund were included. Actual coverage of the 2009 borrowing by cash balances and actual receipts was 2.9x. The $41.8 million projected ending cash balance after TAN repayment in calendar 2010 equals 7% of total projected cash flow receipts, providing a solid cushion against fluctuations in actual receipts or disbursements. Additional flexibility stems from borrowable resources in the county's water and sewer fund, which ended fiscal 2008 with about $141 million in unrestricted cash. Also, the county maintains the ability to adjust the timing of interfund transfers throughout the year.

Following two consecutive years of sizeable operating deficits, the county's general fund, based on unaudited results, ended fiscal 2009 with a healthy operating surplus of approximately $9.2 million. The positive results for fiscal 2009 increased the county's unreserved general fund balance to approximately $85.4 million, equal to about 17.5% of spending and transfers out. Officials expect the county's reserves to remain in excess of its board-imposed policy of maintaining the unreserved general fund balance at or above 8.33%. With property and sales tax revenue essentially flat relative to the prior year, the county eliminated nearly 500 positions in an effort to reduce operating expenditures in the general fund.

Following a sustained period of healthy growth, the county's tax digest declined in 2009 by about 6%, reflecting the ongoing housing market downturn. The county's reappraisal of its commercial properties coupled with a decline in residential home values resulted in widespread appeals in 2008 (fiscal 2009), which prevented the county's tax digest from being certified on time. County officials report significant progress in resolving outstanding appeals and expect that the prior year's digest will be certified sometime in June. The current year's digest will also be late, but officials do not anticipate a protracted delay. The adopted fiscal 2010 budget is balanced with the use of approximately $27 million in general fund reserves. The budget assumes no change in the current millage rate and a decline of approximately 14% in the tax digest. To offset the expected 8% general fund revenue decline, the county is continuing with the elimination of staff and will reduce the annual subsidy made to GHS following a debt restructuring that yielded an upfront debt service savings.

The county's continued practice of pay-as-you-go financing for capital projects and rapid debt amortization continues to keep debt levels exceptionally low. Overall debt, which includes the overlapping municipalities and various authorities, is slightly more than $1,000 on a per capita basis and equal to about 0.8% of market value. Despite the low debt levels and favorable approach to capital funding, Fitch continues to have concerns about the lack of a long-term capital plan as the magnitude of capital needs remain uncertain. In 2009 voters granted the county the authorization to issue up $275 million in general obligation bonds, though no borrowings have been utilized to date. A potential financing of up to $160 million to construct a library may take place during the latter part of this year.

Fulton County has a diverse economic base benefiting from Atlanta's role as the state capital and center of a broad regional economy. While the county's economy has shown signs of weakness in the current recession, Fitch believes long-term prospects are sound. The county's unemployment rate climbed to a high 10.6% in March 2010, though the figure remains almost even with the Atlanta metropolitan statistical area (MSA), the state, and the nation. Population growth has outpaced the state's and the Atlanta MSA's, increasing nearly 27% since the 2000 census. The majority of the county is built-out with nearly one-fifth of the MSA's population residing in Fulton County. On a per capita basis, county income levels are about 30% higher than the broader MSA and 40% higher than the state and nation. Median household income for the county also exceeds by a comfortable margin the MSA, state and nation.

Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:

--'Tax-Supported Rating Criteria' (Dec. 21, 2009).

--'U.S. Local Government Tax-Supported Rating Criteria' (Dec. 21, 2009);

-- State Credit Enhancement Program Criteria (Dec. 16, 2009).

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

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Fitch Ratings
Christopher Hessenthaler, +1-212-908-0773 (New York)
Kelly McGary, +1-813-223-6600 (Tampa)
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
[email protected]

Source: Fitch Ratings