Fitch Affirms Fresno County, California's $316MM Pension Obligs at 'A+'

Fitch Ratings has affirmed the following ratings for Fresno County (the county) as part of its continuous surveillance effort:

--$316 million taxable pension obligation refunding bonds, series 2004 at 'A+'.

In addition, Fitch has assigned an implied general obligation rating of 'AA-'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The rating reflects the county's sound financial position and conservative management practices;

--The economy is centered on agriculture with below average wealth levels and above average unemployment;

--The county's debt profile is sound with low to moderate debt levels and no plans to issue additional debt in the near term;

--Pension obligations as a percent of payroll are high and increasing;

--The rating also considers the strong legal structure of the pension bonds.

KEY RATING DRIVER:

--The county's ability to control spending and maintain fund balance levels in the face of a weakened revenue environment and increasing pension obligations will be key to maintaining the current rating.

SECURITY:

The bonds are secured by an absolute and unconditional obligation of the county.

CREDIT SUMMARY:

The county has maintained a sound financial position over the last five years despite economic pressures to operations. The county has seen its operating deficits decline each of the last two years, to $1 million in fiscal 2010 from $73.7 million in fiscal 2008. As a result, its total general fund balance stood at $230 million, or 15.3% of expenditures net of transfers, at fiscal year end 2010. For the same period, the unreserved balance was $179 million, or 11.9%. Although expenditures and revenues increased 32% and 35%, respectively, in fiscal 2010, the increase was primarily due to a $361.3 million accounting correction for public assistance expenditures to include food stamp revenue and expenditures. Less the correction, expenditures increased 2.4% and revenues 4.4% and the unreserved general fund balance was 15.1% of expenditures.

The county has a policy of reducing costs consistent with revenue reductions and has lowered service levels, cut staffing in fiscal 2009 through 2011 generating $20 million in savings in fiscal 2010 and $17 million in fiscal 2011. Further, it implemented a 40-hour per year furlough for most employees for fiscals 2010 and fiscal 2011, saving over $7 million per year. Should revenues continue to be under stress beyond current expectations, the county anticipates further budget reductions through additional elimination of programs, staff layoffs and delayed capital projects.

The county's debt levels remain moderate, with total overall net debt equal to 4.1% of assessed valuation (AV) and about $2,820 per capita. Amortization is slightly above average, with 57% of principal retired within 10 years. The county is not currently contemplating any additional debt issuances in the near term.

Located in central California, halfway between Los Angeles and Sacramento, Fresno County (population of approximately 931,000) serves as the regional hub for services, commerce and trade of an area economy centered around agriculture. Reflecting the strong agricultural component of the area economy, unemployment rates consistently have been much higher than state and national levels. County unemployment rates currently stand at 17.2% (December 2010) compared to 12.3% for the state and 9.1% nationally. Median household income levels are 75% of state and 98% of national averages. The county's AV fell 3% in fiscal 2010 and an additional 2% in fiscal 2011.

The Fresno County Employees' Retirement Association (FCERA) is a cost-sharing, multiple-employer plan that includes substantially all full-time employees and permanent part-time employees who work 50% or more for the County, the Superior Court of California-County of Fresno, Clovis Memorial District, Fresno Mosquito and Vector Control District, and Fresno/Madera Area Agency on Aging. Its funded ratio as of 6/30/2010 was 72.9% and unfunded liability was $1.1 billion. The county contribution rates increased in the past year from 33.7% of payroll to 44.01% due to changes in actuarial assumptions and investment losses; this represents a contribution increase of about $42 million.

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

In addition to the sources of information identified in the Tax-Supported Rating Criteria this action was additionally informed by information from CreditScope, UFA, LoanPerformance, Inc., University Financial Associates.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 13, 2010);

-- 'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 8, 2010).

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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Contacts:

Fitch Ratings
Primary Analyst
Shannon Groff, [phone]
Director
Fitch, Inc., 650 California Street, San Francisco, CA 94108
or
Secondary Analyst
Stephen Friday, [phone]
Analyst
or
Committee Chairperson
Doug Scott, [phone]
Managing Director
or
Media Relations:
Cindy Stoller, [phone]
Email: [e-mail]