Fitch Ratings has assigned an ‘AAA’ rating to the following St. Louis County, Missouri unlimited tax general obligation bonds (ULTGOs):
- $63.3 million general obligation (GO) bonds (courthouse projects) series 2012.
Bonds will finance a portion of the cost of a new family court building and refund the last maturity of the GO refunding bonds series 1998. The bonds are expected to sell October 30 via competition.
In addition, Fitch affirms the following ratings at ‘AAA’:
- $13.4 million GO refunding bonds series 1998.
General obligation bonds are secured by the county’s full faith and credit and its ad valorem taxing power, without limitation as to rate or amount.
Key Rating Drivers
- Diverse Economic Base: The diverse economic base provides substantial employment opportunities for county residents in a variety of higher wage sectors.
- Above-Average Socioeconomic Profile: Wealth levels are above average, both on a per capita income and market value per capita basis.
- Strong Financial Margins: Fitch expects continued strong financial margins even if moderate projected draws on the ample general fund balance come to pass.
- Affordable Debt Levels: Debt levels are low to moderate and future borrowing plans are manageable.
Diverse Economic Base:
St. Louis County has a well-developed economic base, which continues to diversify away from manufacturing, thus shielding the economy from large cyclical swings in the manufacturing sector. The regional economy’s employment base consists of a higher percentage of both professional services and educational and health services as a percentage of total employment than the national average. Major employers include Boeing Co. with roughly 14,700 employees, Washington University (13,600), and SSM Health Care System (11,300).
Taxable value began declining in 2009, and by 2011 was down an aggregate 10.6%. The tax base is diverse with the top ten property taxpayers accounting for 5.3% of total assessed valuation. County unemployment has decreased over the last year, from 8.5% in July 2011 to 7.3% in July 2012, and is now below the state (7.6%) and national (8.6%) unemployment rates.
Above-Average Socioeconomic Profile:
Wealth levels are above average with 2010 county per capita income levels equaling 135% and 122% of the state and national averages, respectively. County residents are well-educated with 39% achieving higher education versus 28% for the national average.
Strong Financial Margins:
St. Louis County includes the affluent suburbs of St. Louis, but excludes the city proper, limiting vulnerability to urban social service responsibilities. The county has exhibited strong financial performance with ending unreserved/unrestricted general fund balances exceeding 26% of spending for at least the last five years. A $2.8 million net operating surplus, after transfers, was recorded in fiscal 2011. This was a positive variance from the adopted budget, which called for the use of $11 million of general fund balance.
The county ended fiscal 2011 with a $121.5 million unrestricted general fund balance (the sum of committed, assigned and unassigned balances under GASB 54), equivalent to a strong 36.7% of general fund expenditures. The 2012 budget anticipates a $9.6 million reduction in general fund balance. Fitch notes that the county’s cash-basis projections often result in more favorable final results on a GAAP-basis; nevertheless, if the county were to realize a $9.6 million draw on general fund balance, reserve levels would still remain strong.
Management has taken steps to control expenditure growth, including a hiring freeze, wage freeze, and limitations on travel, which has contributed to financial stability. The 2012 budget includes steep cuts in the area of parks and recreation, service cuts, fee increases and elimination of positions. The fiscal 2013 budget is not yet available, but officials project it will feature a stable tax rate, no further reductions in workforce and an appropriation of general fund balance similar to fiscal 2012. Fitch expects it to provide a prudent spending plan commensurate with the ‘AAA’ rating.
Manageable Long-Term Liabilities:
The debt burden is moderate as a result of strong internal capital funding practices. Direct debt, including annual appropriation debt, equals $441 per capita and 0.4% of full market value. Overlapping borrowing lifts overall net debt totals $2,074 per capita or 2.1% of full market value.
The current issue represents the first installment of a two-phase, $100 million GO debt authorization for a new family court building. It also includes a refunding of the last maturity of the existing GO bonds, spreading it over four years to blend debt service requirements with the new issues. Future borrowing plans are moderate and include the $50 million balance of the courthouse project to be issued in 2013, as well as between $15 million and $20 million in special obligation lease revenue borrowing.
The county offers pension benefits to all county employees and commissioned police officers through the St. Louis County, Missouri County Employee Retirement Plan, a single-employer, noncontributory, defined benefit plan. The county routinely makes its full annual required contribution, which in fiscal 2011 equated to 9.4% of general fund spending.
The civilian portion of the plan reports a 72.4% funding ratio, or a somewhat weak 65.2% when adjusted by Fitch to reflect a 7% discount rate. The police portion of the plan reports a 65.7% funding ratio, or a weaker-still Fitch-adjusted 59.2%. The county makes 100% of its actuarially-determined annual required contribution each year and has no OPEB liability.
Additional information is available at ‘ www.fitchratings.com ‘. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch’s Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Financial Advisory and Bond Counsel.