Fitch Rates Chester County, PA GOs Series B & C 2009 'AAA'; Outlook Stable

2009-11-11 18:17:01 -

Fitch Ratings has assigned 'AAA' ratings to Chester County, Pennsylvania's (the county) general obligation (GO) bonds $41.6 million series B of 2009 (Federally Taxable-Build America Bonds - Direct Payment) (BABs) and $61.735 series C of 2009 bonds (collectively, the bonds). The bonds are scheduled to sell via negotiated sale on or about Dec. 1, 2009 with the proceeds of the

series B bonds used to finance county capital improvements and the proceeds of the series C bonds used to refund certain outstanding notes. The Rating Outlook is Stable.

The 'AAA' rating reflects the county's solid financial operations and reserve levels, fiscally prudent management, planning strategies and policies, as well as its high wealth and income levels. The county's large and diverse tax base continues to benefit from ongoing commercial development and is well anchored by its largest employers, including the Vanguard Group, QVC, Inc. and Siemens Medical Solutions. While the county's future capital needs are manageable, Fitch notes that the county's overall debt level which includes that of local school districts, are high for the rating category. This concern is offset by the county's low direct debt levels, and its limited exposure to pension and other post-employment benefit (OPEB) costs. Fitch expects that the county will continue to maintain its high degree of financial flexibility going forward by controlling operating expenses and deferring capital spending, if necessary.

The county is located 30 miles west of Philadelphia and is home to a population of approximately 491,000. Population grew 13.4% since 2000 and while some continued growth is expected, Fitch believes it will be at a slower pace. Wealth levels remain strong as demonstrated in the county's high market value per capita of $142,045 in 2008. The county's ongoing trend of positive employment growth is evidenced by current unemployment levels that rank below both the state and national averages. While the professional and business services and education and health care sectors dominate private employment, strong gains in the trade, transportation and utilities as well as the retail sectors are evident. The county benefits from a highly educated work force as approximately 42% of residents reportedly possess college degrees. The county's unemployment rate of 6.3% in September 2009 remains below the state and national averages of 8.3% and 9.5%, respectively.

Despite a small operating deficit in fiscal 2008, fund balances remain strong due to the county's conservative budget practices, expenditure controls, and healthy flow of revenue driven by an expanding property tax base. The 2008 unreserved fund balance totaled $35 million or 25% of expenditures following a small operating deficit of $3.7 million. The county's wealthy property tax base has expanded steadily as property values grew at double-digit rates from the beginning of the decade through 2006. However, the rate of growth declined to 8.4% in 2007 and 2.1% in 2008, due to an overall slowing in the local housing market. In 2009, growth was relatively flat, which the county expects to continue going forward. Despite the housing market pressures, the county continues to add new commercial development sites, including a new mixed-use project known as Uptown Worthington, which is scheduled to open several new retail stores in the upcoming months, including a Wegman's and Target.

The county's direct debt burden is low at $1,047 per capita and 0.74% of market value (MV). Debt levels are higher on an overall basis, with overall debt per capita at $5,181 and 3.65% of MV when adding in the debt of the county's local school districts. Fitch believes the county's higher overall debt levels are attributable in part to generally limited amount of available state monies for funding local school districts. As such, the debt issued by the local districts provides county students with high-quality education and facilities desired by district residents. In addition, the county's pension plan is adequately funded, and OPEB costs are limited due to the elimination of benefits beginning in 2006. Amortization rates are slightly below average with 44.2% retired in 10 years due to the bullet maturity structure of the current BAB issue.

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Fitch Ratings, New YorkCindy Stoller, +1-212-908-0526 cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com Ann
G. Flynn, +1-212-908-9152Christopher Hessenthaler, +1-212-908-0773