Fitch Rates VA Public School Auth $45MM Special Oblig. Bnds 'AAA'; Outlook Stable

2008-06-27 23:24:12 -

- Fitch Ratings assigns an 'AAA' rating to the Virginia Public School Authority, Virginia's (VPSA) $45 million special obligation school financing bonds, Henrico County series 2008. The bonds are scheduled for bids on July 2 and will mature serially on July 15, 2009-2028. Bond proceeds will be used to purchase $45 million of general obligation (GO) bonds issued by Henrico County, which will use its proceeds to pay the costs of various school capital projects. In addition, Fitch affirms the rating on Henrico County's approximately $348 million of outstanding GO bonds at 'AAA.' The Rating Outlook is Stable.

The bonds are issued pursuant to a stand-alone resolution of the Virginia Public School Authority (VPSA) authorizing the sale of its special obligations bonds for the purpose of purchasing general obligation school bonds issued by Henrico County. The bonds are secured by and payable solely from principal and interest payments made by Henrico County. Debt service payments are made by Henrico County to VPSA on the same day and in the same amount as principal and interest due for VPSA special obligations bonds.

Henrico County continues to achieve the highest level of credit quality due to its excellent financial position, strong economic growth, and moderate debt burden that is rapidly retired. Financial results have been consistently sound, leading to robust reserve levels. A self-imposed limitation on annual budget growth should support long-term financial flexibility, despite projected increases in operating expenditures associated with new capital investments. Taxable assessed valuation (TAV) growth has been strong historically, and Fitch believes that the county is positioned well to manage slower expected growth in fiscal 2009. As a result of the county's prudent financial and capital planning, debt levels are expected to remain within the county's satisfactory debt affordability guidelines.

Henrico County surrounds Virginia's capital of Richmond on the northern side of the James River. The county continues to show solid economic growth; the unemployment rate remains well below commonwealth and national averages and steady employment and labor force expansions continue. The county's local employment base is substantial, and residents have additional job opportunities in the vital government and commercial centers of Richmond. The county's share of the metropolitan Richmond job market was 29% as of 2006. County per capita personal income levels equaled an above-average 107% and 116% of the commonwealth's and nation's, respectively, in 2006.

Financial management is very strong, as reflected in high reserve levels and detailed planning. The county prepares three-year financial forecasts as part of its annual budget process and outlines the effect of capital projects on operations. The general fund ended fiscal 2007 with an $8.7 million surplus, bringing the unreserved fund balance to a sizable 31.4% of spending. Officials expect that conservative budgeting will lead to another surplus year in fiscal 2008. By policy, the county caps the undesignated general fund balance at 18% of spending, and excess funds are transferred to a capital projects reserve to be used for pay-as-you-go capital spending.

The fiscal 2009 general fund budget rose approximately 6.5% over the approved fiscal 2008 level, within the county's guideline. The budget maintains a low property tax rate of $0.87 per $100 of TAV. Fiscal 2009 TAV growth is expected to slow from the double-digit increases of the past four years. However, Fitch believes the county's low property tax rate and strong reserve levels prepare it well to manage slower TAV growth and any associated revenue pressures for the foreseeable future.

With this issuance, overall debt is $1,903 per capita, or 1.5% of full market value. The debt service burden on the budget is moderate at slightly less than 7% in fiscal 2008, and amortization is well above average, with 65% of debt retired in 10 years. The county projects that the approximately $249 million of authorized but unissued debt will be bonded by fiscal 2012, and officials expect that the county will stay within its debt affordability guidelines. The county's fiscal 2009-2013 CIP totals $1.7 billion. Pay-as-you-go funding makes up a considerable 63% of planned sources.

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