Fitch Ratings assigns an 'AAA' rating to Loudoun County, Virginia's (the county) approximately $113 million general obligation (GO) refunding bonds, series 2009B. The bonds are scheduled to price via negotiated sale on May 7, 2009, with proceeds to refund certain outstanding GO public improvement bonds of the county. In addition, Fitch affirms the 'AAA' rating on Loudoun County's $928 million outstanding GO debt and the 'AA+' rating on the county's $45 million in outstanding lease revenue bonds. The Rating Outlook is Stable.
Loudoun County's 'AAA' rating reflects its strong economic indicators, including low unemployment and high wealth levels, solid fiscal management and planning, a broad and diverse economy, and rapidly retiring debt profile. The 'AA+' rating on the lease revenue bonds reflects the sound lease terms, the essentiality of the leased premises, and the strong credit quality of Loudoun County. Among the nation's five fastest growing counties in 2007, Loudoun County's economy continues to expand and diversify, focused around aerospace, homeland security, defense, and information technology. The Stable Outlook reflects Fitch's belief that continued prudence in fiscal management and capital planning will allow Loudoun County to maintain sound levels of overall financial flexibility despite real estate market declines and impacts of the current economic downturn. Loudoun County has historically demonstrated strong financial management through preservation of ample reserves in all governmental operating funds; however, rapid growth in population and school enrollment has resulted in significant capital demands, especially for school construction.
Located west of Washington, D.C., this historically rural county is now a major metropolitan suburb. The population nearly doubled during the 1990s and has increased 64% since the 2000 census to an estimated 289,995 in 2008. Loudoun County's unemployment rate is well below regional and state averages, and income levels exceed state and national levels by all measures. A great deal of the economic growth, including the recent expansion of the data processing and transportation industries, builds upon the economic anchors of Dulles International Airport and federal homeland security. Additionally, Loudoun County is benefiting from increased economic diversification, as is evident by the opening of the Howard Hughes Medical Institute research center, which is anticipated to attract a significant number of biomedical research jobs.
Reflecting the real estate market downturn across the nation and the Washington D.C. metropolitan area, previously very strong growth in Loudoun County's tax base has been reversed, with a sizable decline for fiscal 2009 and a second loss expected for fiscal 2010. The fiscal 2009 drop (9.5%) follows a very small loss in fiscal 2008 and a remarkable average annual gain of 17.8% from fiscal 2002 to fiscal 2007. Loudoun County estimates that the loss for fiscal 2010 will be about 7.7%. Similar to the region, Loudoun County has seen significant increases in foreclosures as well as declining home prices, trends that are projected to continue over the near term. Fitch believes that the depth and breadth of the local economy should help to absorb some of the effects of the real estate market downturn.
The stability of financial operations is notable given Loudoun County's rapid growth, although Fitch recognizes that pressure from real estate market declines and capital needs will continue be a challenge over the next few years. General fund reserves are sound and include a fiscal reserve equal to at least 10% of net revenue of the general and school operating funds. Audited fiscal 2008 results show a net operating deficit of $6.5 million in the general fund, resulting in an unreserved fund balance of $145.8 million, a strong 14.8% of spending. Also, this result is net of a $23.5 million contribution to capital projects. County officials have implemented cost containment initiatives that are expected to assist in balancing fiscal 2009 operations. The adopted fiscal 2010 budget addresses the severity of the current economic environment by reducing overall appropriations by 11.5%. The adopted fiscal 2010 tax rate of $1.245 represents a 10.5 cent increase over fiscal 2009, but reduces the average residential tax bill by 6.5%.
Debt levels are moderate as a percent of market value and high on a per capita basis, although the latter is offset somewhat by Loudoun County's high wealth. Capital needs remain significant, as exhibited by the $1.4 billion fiscal 2009-2014 amended capital improvement plan. Recent revisions to Loudoun County's debt policies include elimination of the debt per capita target, the addition of a targeted payout ratio of 60% in 10 years, and a small increase to the debt as a percentage of per capita income target. Including the current issuance, amortization of principal is above average, with 68% paid off within the next 10 years.
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