Carroll (County of) MD

Transcription

1 CREDIT OPINION Carroll (County of) MD Update following upgrade to Aaa Summary Nisha Rajan Analyst Lauren Von Bargen AVP-Analyst CLIENT SERVICES Americas Asia Pacific Japan EMEA The county's healthy financial position is supported by long-term financial forecasting and has maintained years of stability, although reserves are below the medians for similarlyrated credits nationally. The county's debt and pension liabilities are manageable, and while the county will issue additional debt to support its substantial capital improvement plan, increasing revenues, annual pay-go funding for capital projects, and self-supporting nature of the utility systems will render debt service payments manageable. Exhibit 1 General Fund: Historically Stable and Healthy Financial Position Fiscal Revenues Net Cash as % of Revenue Total Fund Balance as % of Revenue $390 40% 35% $380 30% $370 25% 20% $360 15% $350 10% $340 5% 0% $ Source: Carroll County, MD & Moody's Investors Service On October 11, we upgraded to Aaa from Aa1 the county's general obligation rating. Credit strengths» Sizeable tax base that benefits from proximity to the Baltimore MSA» Healthy financial position supported by formal fiscal policies and long-term planning» Strong wealth and income levels Credit challenges» Reliance on economically sensitive revenues Reserve Ratios Revenues in Millions Analyst Contacts Carroll County (Aaa stable) is experiencing moderate economic growth due to its proximity to the City of Baltimore (Aa2 stable), increased business investment and activity, and an improved housing market, which is contributing to increased revenue streams. Resident wealth and income levels are strong, enabling the county to raise taxes to balance operations and support additional county services.

2 » Below-average reserves compared to Aaa counties nationally Rating outlook The stable outlook reflects the continued growth of the county s tax base, which derives stability from its location near the District of Columbia (Aaa stable). The outlook also factors in the county s healthy financial position and adherence to formal financial and debt policies, which will likely continue to support stable financial operations going forward. Factors that could lead to an upgrade» Not applicable Factors that could lead to a downgrade» Material deterioration in taxable values or demographic profile» Declines in general fund reserves and liquidity» Material increase in debt burden Key indicators Exhibit 2 Carroll (County of) MD $18,808,823 $18,549,381 $18,495,549 $18,733,021 $19,098, , , , , ,594 $112,452 $110,809 $110,458 $111,816 $110, % 155.0% 153.3% 152.1% 152.1% $377,986 Economy/Tax Base Total Full Value ($000) Population Full Value Per Capita Median Family Income (% of US Median) Finances Operating Revenue ($000) $339,255 $348,891 $358,672 $374,875 Fund Balance ($000) $52,162 $48,783 $46,241 $54,241 $56,315 Cash Balance ($000) $117,509 $106,169 $99,498 $113,602 $109,651 Fund Balance as a % of Revenues 15.4% 14.0% 12.9% 14.5% 14.9% Cash Balance as a % of Revenues 34.6% 30.4% 27.7% 30.3% 29.0% $343,476 $344,128 $332,333 $338,512 $321,764 N/A $21,065 $48,954 $81,033 $116, % 1.9% 1.8% 1.8% 1.7% Debt/Pensions Net Direct Debt ($000) 3-Year Average of Moody's ANPL ($000) Net Direct Debt / Full Value (%) Net Direct Debt / Operating Revenues (x) 1.0x 1.0x 0.9x 0.9x 0.9x Moody's - adjusted Net Pension Liability (3-yr average) to Full Value (%) N/A 0.1% 0.3% 0.4% 0.6% Moody's - adjusted Net Pension Liability (3-yr average) to Revenues (x) N/A 0.1x 0.1x 0.2x 0.3x Source: Carroll County, MD & Moody's Investors Service Profile Carroll County is located 25 miles northwest of the City of Baltimore and has a population of approximately 170,000. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Detailed credit considerations Economy and tax base: substantial, expanding tax base with strong resident wealth levels Carroll County's tax base will likely experience moderate growth because of ongoing economic commercial development and appreciating property values. The tax base grew a five-year compound annual rate of 0.8% to reach full valuation of $19.6 billion in fiscal 2018, reflecting increases during the past three years. The county's tax base is aligned with the national Aaa-medians for counties with similar population levels (between 100,000 and 250,000) at $18.5 billion, although the base is small when compared to the median for all Aaa rated counties. Although assessable values declined during the economic downturn, county management aggressively pursued economic development and private investment opportunities to diversify and expand the local economy. Between 2016 and 2018, investment within the county totaled $304 million from 13 companies, resulting in over 1,100 new jobs. Notable developments include a $150 million expansion at Lehigh Heidelberg Cement Group, a $40 million construction of Fuchs North American's corporate headquarters (150 employees), $14 million expansion at Penguin Random House, which is expected to add 300 employees over the next several years, and a $60 million redevelopment project to redevelop the former Carroll County Commerce Center into a mixed used facility. The county has additional land development projects totaling $400 million and adding approximately $2.7 million of square footage. Tourism and related sales have also increased annually since Unemployment in the county consistently trends below the state and nation, highlighting resiliency during economic downturns and independence from dependency on one industry. As of August 2018, unemployment was 3.4%, relative to 4.2% and 3.9% in the state and nation, respectively. Wealth and income is also strong, with median family income of 152% of the national level, and full value (2018) per capita of $112,879, which is aligned with the median of $110,655. Financial operations and reserves: healthy, stable financial position The county's financial position will remain healthy because of formal fiscal policies and management's commitment to long-term financial forecasting. The county maintains a stabilization fund targeted at 5% of the following year's budget, which is held within committed general fund balance, as well as a contingency reserve at 1% of the annual budget, held in assigned general fund balance. Financial management practices, including the development of a six-year balanced operating plan and the restriction of one-time revenues (including appropriated fund balance) to fund non-recurring expenditures, further enhance the county's ability to maintain healthy, balanced operations. Fiscal 2017 ended with a $51 thousand operating deficit (net of bond proceeds), and year-end available fund balance totaled a healthy $56.3 million (14.6% of revenue), which includes the designation of $21.4 million in the stabilization fund. Although the county's financial position falls below the median for similar Aaa-counties at 33.5% of revenues, they maintain the ability to raise property and income tax rates, affording additional flexibility. Property taxes comprise the largest source of revenues (51.5%), followed by income taxes (36.2%). The county's property tax rate, which is not subject to any caps, remained unchanged at $10.18 per $1,000 of assessed value, and the local income tax rate (3.03%) is markedly below the cap of 3.2%, which affords the county future operating flexibility. The county also allocates a portion of property and income tax revenues to fund capital projects and debt service on a pay-go basis. These revenues ($11.7 million in fiscal 2017) are collected in the capital projects fund directly, but may be transferred to the general fund to finance operations in the event of a revenue shortfall or unexpected operating need. The capital projects fund also holds approximately $24 million in fund balance to support capital needs if revenues are redirected. The fiscal 2018 budget represented a 2.5% increase over fiscal 2017, and included $11.5 million in appropriated fund balance. According to unaudited figures, fiscal 2018 ended with an operating deficit of $7.8 million, primarily to fund one-time capital projects. Available general fund balance dropped slightly to $53.8 million, or a still stable 13.8% of operating revenues. The fiscal 2019 general fund budget represents a 2.8% increase over fiscal 2018, and allocates $12.9 million of fund balance for onetime uses and capital. The budget includes growth in funding for schools, safety and police, which will likely be supported by growth in property, income and recordation taxes. Property and income tax rates remain level. 3

4 LIQUIDITY The county's net cash position remains healthy but falls below the median (43.2% of revenues) for similarly rated counties nationally. Fiscal 2017 finished with a general fund cash balance of $109.7 million (28.4% of revenues). Overall, the county's five year net cash position averaged 30% of revenues. Debt and pensions: moderate debt burden and pension liabilities will remain manageable The county's debt burden will likely remain manageable, given continued tax base growth and dedicated revenue streams to finance capital improvements. Post-issuance, the county's direct debt burden is an above-average 1.6% of full value. Because the county also issues debt for its schools, its direct debt burden is elevated compared to peers. The median debt burden for similarly rated counties is approximately 1.0% of full value nationally, and 1.9% of full value in MD. The county currently has $31.1 million in outstanding general obligation debt to provide funds for its Agricultural Preservation Program. This debt is repaid from general revenues of the county and principal from federal obligation securities. As of the end of fiscal 2017, the county held federal obligation securities that totaled $29.5 million, which are considered restricted investments. Net of this debt, the county's direct debt burden declines to 1.4% of full value. The county's earmarking of revenue streams for capital projects and the aggressive funding of pay-go capital improvements represent credit strengths. The county designates a minimum 2.25% of property tax receipts for the capital budget, dedicates 9.09% of local income tax revenue to school construction and debt service, and uses impact fees for school and park construction. The county maintains a $477 million six-year capital improvement plan ( ), 45% of which will fund the county's schools, 22% for roads and bridges, and 13% for general government. 38% of the plan is expected to be bond-funded, while 26% will be financed with pay-go, which is generally in line with prior year capital plans. The county's level of pay-go capital funding provides additional financial flexibility given that the county has the ability to adjust pay-go projects in a given year, if needed. DEBT STRUCTURE All of the county's debt is fixed rate, and amortization of debt is average with 72.7% retired in 10 years. Fiscal 2017 debt service comprised a manageable 11% of operating expenditures. DEBT-RELATED DERIVATIVES The county is not party to any derivative agreements. PENSIONS AND OPEB The county maintains three defined benefit pension plans including the Carroll County Employee Pension Plan (CCEPP), the Carroll County Certified Law Officers Pension Plan (CCCLOPP), and the Volunteer Fireman Pension Plan (LOSAP). The annual required contribution (ARC) for CCEPP was $2.6 million (0.7% of operating expenditures) in fiscal 2017, $0.8 million (0.2% of operating expenditures) for CCCLOPP and $0.1 million (0.02% of operating expenditures) for LOSAP. The county's adjusted pension liability, under Moody's methodology for adjusting reported pension data, is $132 million, or a low 0.35 times of operating revenues in fiscal The county's contribution to CCEPP in fiscal 2018 constituted 111% of the ARC, while the contribution to CCCLOPP constituted 115% of the ARC. The contribution to LOSAP constituted 25% of the ARC in fiscal 2018, and the county plans to remedy the past few years of underfunding by allocated $1.3 million in fiscal Additionally, the county offers employees other post-employment benefits (OPEB). In fiscal 2017, the county contributed $10.1 million, representing 89% of the annual OPEB cost. In fiscal 2018, the county contributed $10.6 million, or 93% of the annual OPEB cost. As of the July 1, 2018 valuation, the county had a $101.3 million unfunded OPEB liability. Overall, total fixed costs (debt service, pension, and annual OPEB costs) represented a moderate 14.2% of operating expenditures in fiscal Management and governance Maryland Counties have an Institutional Framework score of Aa, which is high compared to the nation. Institutional Framework scores measure a sector's legal ability to increase revenues and decrease expenditures. 4

5 While the sector's largest revenue source, property taxes, is not subject to any statewide caps, income taxes account for approximately a third of revenues and are capped at 3.2%. Unpredictable revenue fluctuations tend to be minor, or under 5% annually. Across the sector, fixed and mandated costs are generally greater than 25% of expenditures. Maryland has public sector unions, which can limit the ability to cut expenditures. Unpredictable expenditure fluctuations tend to be minor, under 5% annually. 5

6 2018 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY S PUBLICATIONS MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL and/or Moody s Analytics Australia Pty Ltd ABN AFSL (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER

7 CLIENT SERVICES 7 Americas Asia Pacific Japan EMEA