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Public Finance Tax Supported New Issue
Prince George’s County, Maryland
Ratings
Rating Rationale
New Issues General Obligation Consolidated Public Improvement TaxAA+ Exempt Bonds, Series 2009A General Obligation Consolidated Public Improvement Bonds (TaxExempt Bonds) or (Taxable Build America Bonds Direct Payment AA+ to Issuer), Series 2009B Outstanding Debt General Obligation Bonds
Prince George’s County’s revenue-raising flexibility from its two main revenue sources has become even more limited recently, and reserves have deteriorated from the high levels earlier in the decade. To date, the county has demonstrated an ability to maintain reserves at policy levels that are consistent with the rating category, although revenue limitations and expenditure pressures have increased the challenges of preserving reserves and obtaining a structurally balanced budget.
The county benefits from its central location in the national capital region and its well-developed transportation infrastructure, attracting a strong base centered upon vital government operations and higher education. Prospects for continued growth are strong, as several major commercial and residential developments are underway.
Solid tax base growth is projected for at least the next few years, buttressed by additional development, Maryland’s three-year phase-in of reassessment growth, and the homestead tax credit.
Mixed economic indicators include unemployment below the national level and at the state average and the highest foreclosure rate in the state. Wealth levels are at or above that of the nation’s and at or below those of the wealthy state, although these figures may be skewed by the large military and student population.
The county’s debt burden should remain affordable given its rapid amortization, projected tax base growth, and willingness to defer capital spending.
AA+
Rating Outlook Negativea a
Revised from Stable on Sept. 23, 2009.
Analysts Barbara Ruth Rosenberg +1 212 908-0731 [email protected]
Jessalynn Moro +1-212 908-0608 [email protected]
New Issue Details Sale Information: Approximately $26,450,000 General Obligation Consolidated Public Improvement TaxExempt Bonds, Series 2009A, and $36,850,000 General Obligation Consolidated Public Improvement Bonds (Tax-Exempt Bonds) or (Taxable Build America Bonds Direct Payment to Issuer), Series 2009B, competitively on Sept. 29. Security: Secured by Prince George's County's full faith and credit, subject to the limitations of sections 812 and 813 of the county charter. Section 812 limits real property tax rate to $0.96 per $100 of assessed valuation. Section 813 requires that certain taxes and fees may not be increased without voter approval. Purpose: To finance various capital projects, including county buildings, public safety communication system, transportation, and solid waste. Final Maturity: Series 2009A: serially, Sept. 15, 20102019; Series 2009B: serially, Sept. 15, 20202029.
What Could Trigger a Downgrade?
Failure to preserve adequate reserve levels, to maintain financial flexibility, or to regain structurally balanced budgets in spite of revenue raising limitations and spending pressures, could result in a downgrade.
Credit Summary
The ‘AA+’ rating reflects the county’s limitations on increasing the real property tax rate, solid though declining reserves, economic and projected tax base growth, and moderately low debt levels. The Negative Rating Outlook reflects the county’s decreased financial flexibility and the challenges towards obtaining a structurally balanced budget. The county has experienced general fund budget deficits and consequent reductions in reserve levels since fiscal 2007. In response, the county has implemented stringent expenditure controls, utilized one-time revenue enhancements, including the reserves of other funds, and raised tax rates. Fitch Ratings is concerned that spending pressures, the property tax rate cap, and an income tax recently raised to the maximum level will restrict the county’s ability to maintain reserves and achieve structural balance through recurring revenues at levels appropriate for the rating category. Economic prospects are strong, as several major commercial and residential developments are under way, likely providing additional tax revenue for several years due to Maryland’s three-year phase-in of property assessments. The county’s debt burden should remain affordable given its rapid amortization and projected tax base growth. Further deterioration of reserves and the inability to implement a budget that minimizes the use of one-time revenue enhancements will place downward pressure on the rating.
www.fitchratings.com
September 25, 2009
Public Finance Related Research Anne Arundel County, Maryland, July 7, 2009 State of Maryland, Feb. 23, 2009
Rating History Rating AA+ AA+ AA+ AA AA AA AA AA
Action Affirmed Affirmed Upgraded Affirmed Affirmed Affirmed Upgraded Assigned
Outlook/ Watch Negative Stable Stable Positive Positive Stable
Date 9/23/09 5/20/08 6/21/05 11/24/04 6/19/03 9/1/02 1/6/94 11/05/92
Located adjacent to Washington, D.C., the county has an economic base that is centered on vital governmental bureaus and higher education, including Andrews Air Force Base and the University of Maryland. Completion of the initial phase of the $2 billion National Harbor project along the Potomac River and development of other hotel and retail areas mark a significant breakthrough for a county historically underserved by these sectors. Mixed economic indicators include wealth levels at or above the nation’s and at or below those of the wealthy state, although these figures may be skewed by the large military and student population, and the July 2009 unemployment rate of 7.5%, comparable to the state level and below the nation’s 9.7%. Although the county has accounted for about one-third of all foreclosure events in the state over the past year, there has been limited revenue effects and assessed valuation (AV) growth is projected to remain sound through at least fiscal 2011, partly attributable to the three-year phase-in of reassessment growth, the homestead tax credit, and the relatively strong growth of the commercial base. Fitch expects demand for housing in the county to remain strong given the prime location and relative affordability in the Washington D.C. metropolitan area. The county’s general fund reserves have declined, reflecting a charter mandated tax cap and other limitations on the county’s revenue raising ability. Revenue enhancements, often consisting of the utilization of non-recurring revenues, and stringent expenditure controls have proved insufficient in obtaining a structurally balanced budget. Fiscal years 20072008 and the projected fiscal 2009 general fund balance decreases reflected the inherent challenges of maintaining positive financial operations given limited rate raising flexibility and increased budgetary pressure. While the county raised its income tax rate to the 3.2% maximum, it was unsuccessful in its attempt to obtain state approval to increase the homestead tax credit and Debt Statistics the transit tax; consequently, revenue ($000) enhancements in fiscal 2009 included 63,300 the use of one-time sources. Additional This Issue 1,109,382 one-time revenue enhancements were Outstanding Debt 1,172,682 necessary to balance the fiscal 2010 Direct Debt Overlapping Debt 213,945 budget, including appropriating Total Overall Debt 1,386,627 $25 million of undesignated fund balance and budgeting $30 million of Debt Ratios 1,429 Direct Debt Per Capita ($)a fund balance from M-NCPPC (Prince As % of Full Market Valueb 1.1 George’s County). Projections indicate Overall Debt Per Capita ($)a 1,689 As % of Full Market Valueb 1.3 that fiscal 2010 unreserved fund balance levels would be around 15% of aPopulation: 820,852 (2008 estimate). bFull market value: general fund spending, given $106,552,200,000 (fiscal 2010). unreserved designations that approximate those of fiscal 2008, a fully funded charter contingency at 5% of the budget, and a stability reserve equal to 2% of the budget. Fitch believes that the county’s limited financial flexibility, given the property
2
Prince George’s County, Maryland
September 25, 2009
Public Finance tax cap and current income tax rate, and pressures to curtail spending will hamper its financial position if revenues fail to meet the budget or if the county must absorb further reductions in state revenue.
General Fund Financial Summary ($000, Audited Years Ended June 30)
Property Tax Revenue Sales Tax Revenue Other Tax Revenue Total Tax Revenue License and Permits Fines and Forfeits Charges for Services Intergovernmental Revenue Other Revenue General Fund Revenue
2006 511,842 0 791,084 1,302,926 29,011 1,982 25,444 35,994 28,659 1,424,016
2007 549,169 0 779,673 1,328,842 27,493 1,717 24,500 29,893 44,167 1,456,612
2008 609,733 0 720,958 1,330,691 20,734 1,646 26,819 32,258 45,446 1,457,594
General Government Expenditures Public Safety Expenditures Public Works Expenditures Health and Social Services Expenditures Culture and Recreation Expenditures Educational Expenditures Capital Outlay Expenditures Debt Service Expenditures Other Expenditures General Fund Expenditures
197,323 408,195 0 25,745 0 605,025 0 12,557 17,552 1,266,397
196,215 467,373 0 27,750 0 639,904 0 13,060 17,662 1,361,964
196,818 507,181 0 29,108 0 648,036 0 16,363 14,782 1,412,288
157,619
94,648
45,306
5,000 127,659 0 (122,659)
18,947 137,975 0 (119,028)
0 87,759 0 (87,759)
368,976 26.5 244,844 17.6 128,659 9.2
344,596 23 209,848 14 103,870 6.9
302,143 20.1 153,501 10.2 65,020 4.3
General Fund Surplus Transfers In and Other Sources Transfers Out and Other Uses Other Net Adjustments Net Transfers and Other Total Fund Balance As % of Expenditures, Transfers Out, and Other Uses Unreserved Fund Balance As % of Expenditures, Transfers Out, and Other Uses Unreserved, Undesignated Fund Balance As % of Expenditures, Transfers Out, and Other Uses Note: Numbers may not add due to rounding.
Conservative debt management, including frequent affordability reviews, rapid amortization, and the ability to reduce capital improvement costs in periods of economic stress have contributed to moderately low debt levels. The county’s overall debt burden should remain moderate over the life of the $2.1 billion fiscal years 20102015 capital improvement plan (CIP) given the projections for future tax base growth and the county’s rapid principal amortization rate of approximately 66.7% of debt retiring within 10 years. Overall debt levels, including general obligations (GOs) of the Maryland National Capital Park and Planning Commission that carry an unlimited ad valorem tax guaranty from the county, are moderately low at 1.3% of full market value and $1,689 per capita. The county’s funded position of its pension systems for police and fire is well below average at approximately 67% and 61%, respectively. Fitch will continue to monitor the funded status of the plans and expects the county to continue its past practice of fully funding its annually required contributions.
Prince George’s County, Maryland
September 25, 2009
3
Public Finance
Copyright © 2009 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriters, and other sources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, the information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from USD1,000 to USD750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from USD10,000 to USD1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
4
Prince George’s County, Maryland
September 25, 2009
Prince George’s County, Maryland
Ratings
Rating Rationale
New Issues General Obligation Consolidated Public Improvement TaxAA+ Exempt Bonds, Series 2009A General Obligation Consolidated Public Improvement Bonds (TaxExempt Bonds) or (Taxable Build America Bonds Direct Payment AA+ to Issuer), Series 2009B Outstanding Debt General Obligation Bonds
Prince George’s County’s revenue-raising flexibility from its two main revenue sources has become even more limited recently, and reserves have deteriorated from the high levels earlier in the decade. To date, the county has demonstrated an ability to maintain reserves at policy levels that are consistent with the rating category, although revenue limitations and expenditure pressures have increased the challenges of preserving reserves and obtaining a structurally balanced budget.
The county benefits from its central location in the national capital region and its well-developed transportation infrastructure, attracting a strong base centered upon vital government operations and higher education. Prospects for continued growth are strong, as several major commercial and residential developments are underway.
Solid tax base growth is projected for at least the next few years, buttressed by additional development, Maryland’s three-year phase-in of reassessment growth, and the homestead tax credit.
Mixed economic indicators include unemployment below the national level and at the state average and the highest foreclosure rate in the state. Wealth levels are at or above that of the nation’s and at or below those of the wealthy state, although these figures may be skewed by the large military and student population.
The county’s debt burden should remain affordable given its rapid amortization, projected tax base growth, and willingness to defer capital spending.
AA+
Rating Outlook Negativea a
Revised from Stable on Sept. 23, 2009.
Analysts Barbara Ruth Rosenberg +1 212 908-0731 [email protected]
Jessalynn Moro +1-212 908-0608 [email protected]
New Issue Details Sale Information: Approximately $26,450,000 General Obligation Consolidated Public Improvement TaxExempt Bonds, Series 2009A, and $36,850,000 General Obligation Consolidated Public Improvement Bonds (Tax-Exempt Bonds) or (Taxable Build America Bonds Direct Payment to Issuer), Series 2009B, competitively on Sept. 29. Security: Secured by Prince George's County's full faith and credit, subject to the limitations of sections 812 and 813 of the county charter. Section 812 limits real property tax rate to $0.96 per $100 of assessed valuation. Section 813 requires that certain taxes and fees may not be increased without voter approval. Purpose: To finance various capital projects, including county buildings, public safety communication system, transportation, and solid waste. Final Maturity: Series 2009A: serially, Sept. 15, 20102019; Series 2009B: serially, Sept. 15, 20202029.
What Could Trigger a Downgrade?
Failure to preserve adequate reserve levels, to maintain financial flexibility, or to regain structurally balanced budgets in spite of revenue raising limitations and spending pressures, could result in a downgrade.
Credit Summary
The ‘AA+’ rating reflects the county’s limitations on increasing the real property tax rate, solid though declining reserves, economic and projected tax base growth, and moderately low debt levels. The Negative Rating Outlook reflects the county’s decreased financial flexibility and the challenges towards obtaining a structurally balanced budget. The county has experienced general fund budget deficits and consequent reductions in reserve levels since fiscal 2007. In response, the county has implemented stringent expenditure controls, utilized one-time revenue enhancements, including the reserves of other funds, and raised tax rates. Fitch Ratings is concerned that spending pressures, the property tax rate cap, and an income tax recently raised to the maximum level will restrict the county’s ability to maintain reserves and achieve structural balance through recurring revenues at levels appropriate for the rating category. Economic prospects are strong, as several major commercial and residential developments are under way, likely providing additional tax revenue for several years due to Maryland’s three-year phase-in of property assessments. The county’s debt burden should remain affordable given its rapid amortization and projected tax base growth. Further deterioration of reserves and the inability to implement a budget that minimizes the use of one-time revenue enhancements will place downward pressure on the rating.
www.fitchratings.com
September 25, 2009
Public Finance Related Research Anne Arundel County, Maryland, July 7, 2009 State of Maryland, Feb. 23, 2009
Rating History Rating AA+ AA+ AA+ AA AA AA AA AA
Action Affirmed Affirmed Upgraded Affirmed Affirmed Affirmed Upgraded Assigned
Outlook/ Watch Negative Stable Stable Positive Positive Stable
Date 9/23/09 5/20/08 6/21/05 11/24/04 6/19/03 9/1/02 1/6/94 11/05/92
Located adjacent to Washington, D.C., the county has an economic base that is centered on vital governmental bureaus and higher education, including Andrews Air Force Base and the University of Maryland. Completion of the initial phase of the $2 billion National Harbor project along the Potomac River and development of other hotel and retail areas mark a significant breakthrough for a county historically underserved by these sectors. Mixed economic indicators include wealth levels at or above the nation’s and at or below those of the wealthy state, although these figures may be skewed by the large military and student population, and the July 2009 unemployment rate of 7.5%, comparable to the state level and below the nation’s 9.7%. Although the county has accounted for about one-third of all foreclosure events in the state over the past year, there has been limited revenue effects and assessed valuation (AV) growth is projected to remain sound through at least fiscal 2011, partly attributable to the three-year phase-in of reassessment growth, the homestead tax credit, and the relatively strong growth of the commercial base. Fitch expects demand for housing in the county to remain strong given the prime location and relative affordability in the Washington D.C. metropolitan area. The county’s general fund reserves have declined, reflecting a charter mandated tax cap and other limitations on the county’s revenue raising ability. Revenue enhancements, often consisting of the utilization of non-recurring revenues, and stringent expenditure controls have proved insufficient in obtaining a structurally balanced budget. Fiscal years 20072008 and the projected fiscal 2009 general fund balance decreases reflected the inherent challenges of maintaining positive financial operations given limited rate raising flexibility and increased budgetary pressure. While the county raised its income tax rate to the 3.2% maximum, it was unsuccessful in its attempt to obtain state approval to increase the homestead tax credit and Debt Statistics the transit tax; consequently, revenue ($000) enhancements in fiscal 2009 included 63,300 the use of one-time sources. Additional This Issue 1,109,382 one-time revenue enhancements were Outstanding Debt 1,172,682 necessary to balance the fiscal 2010 Direct Debt Overlapping Debt 213,945 budget, including appropriating Total Overall Debt 1,386,627 $25 million of undesignated fund balance and budgeting $30 million of Debt Ratios 1,429 Direct Debt Per Capita ($)a fund balance from M-NCPPC (Prince As % of Full Market Valueb 1.1 George’s County). Projections indicate Overall Debt Per Capita ($)a 1,689 As % of Full Market Valueb 1.3 that fiscal 2010 unreserved fund balance levels would be around 15% of aPopulation: 820,852 (2008 estimate). bFull market value: general fund spending, given $106,552,200,000 (fiscal 2010). unreserved designations that approximate those of fiscal 2008, a fully funded charter contingency at 5% of the budget, and a stability reserve equal to 2% of the budget. Fitch believes that the county’s limited financial flexibility, given the property
2
Prince George’s County, Maryland
September 25, 2009
Public Finance tax cap and current income tax rate, and pressures to curtail spending will hamper its financial position if revenues fail to meet the budget or if the county must absorb further reductions in state revenue.
General Fund Financial Summary ($000, Audited Years Ended June 30)
Property Tax Revenue Sales Tax Revenue Other Tax Revenue Total Tax Revenue License and Permits Fines and Forfeits Charges for Services Intergovernmental Revenue Other Revenue General Fund Revenue
2006 511,842 0 791,084 1,302,926 29,011 1,982 25,444 35,994 28,659 1,424,016
2007 549,169 0 779,673 1,328,842 27,493 1,717 24,500 29,893 44,167 1,456,612
2008 609,733 0 720,958 1,330,691 20,734 1,646 26,819 32,258 45,446 1,457,594
General Government Expenditures Public Safety Expenditures Public Works Expenditures Health and Social Services Expenditures Culture and Recreation Expenditures Educational Expenditures Capital Outlay Expenditures Debt Service Expenditures Other Expenditures General Fund Expenditures
197,323 408,195 0 25,745 0 605,025 0 12,557 17,552 1,266,397
196,215 467,373 0 27,750 0 639,904 0 13,060 17,662 1,361,964
196,818 507,181 0 29,108 0 648,036 0 16,363 14,782 1,412,288
157,619
94,648
45,306
5,000 127,659 0 (122,659)
18,947 137,975 0 (119,028)
0 87,759 0 (87,759)
368,976 26.5 244,844 17.6 128,659 9.2
344,596 23 209,848 14 103,870 6.9
302,143 20.1 153,501 10.2 65,020 4.3
General Fund Surplus Transfers In and Other Sources Transfers Out and Other Uses Other Net Adjustments Net Transfers and Other Total Fund Balance As % of Expenditures, Transfers Out, and Other Uses Unreserved Fund Balance As % of Expenditures, Transfers Out, and Other Uses Unreserved, Undesignated Fund Balance As % of Expenditures, Transfers Out, and Other Uses Note: Numbers may not add due to rounding.
Conservative debt management, including frequent affordability reviews, rapid amortization, and the ability to reduce capital improvement costs in periods of economic stress have contributed to moderately low debt levels. The county’s overall debt burden should remain moderate over the life of the $2.1 billion fiscal years 20102015 capital improvement plan (CIP) given the projections for future tax base growth and the county’s rapid principal amortization rate of approximately 66.7% of debt retiring within 10 years. Overall debt levels, including general obligations (GOs) of the Maryland National Capital Park and Planning Commission that carry an unlimited ad valorem tax guaranty from the county, are moderately low at 1.3% of full market value and $1,689 per capita. The county’s funded position of its pension systems for police and fire is well below average at approximately 67% and 61%, respectively. Fitch will continue to monitor the funded status of the plans and expects the county to continue its past practice of fully funding its annually required contributions.
Prince George’s County, Maryland
September 25, 2009
3
Public Finance
Copyright © 2009 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriters, and other sources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, the information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from USD1,000 to USD750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from USD10,000 to USD1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
4
Prince George’s County, Maryland
September 25, 2009
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