Fitch Rates Gwinnett County, GA Urban Redevelopment Agency Bonds 'AAA'; Outlook Stable
Fitch Ratings - New York - 19 Feb 2021: Fitch Ratings has assigned a 'AAA' rating to the following Gwinnett County, GA Urban Redevelopment Agency (the agency) revenue bonds:$23,700,000 Series 2021.
The agency's bonds are scheduled for competitive sale on March 2, 2021. Proceeds from the bonds will be used to finance costs related to the purchase of Gwinnett Place Mall for economic development purposes.
In addition, Fitch has affirmed the following Gwinnett County ratings at 'AAA':
--Long-Term Issuer Default Rating (IDR);
--$374,995,000 outstanding Water and Sewerage Authority revenue bonds;
--$304,200,000 outstanding Development Authority of Gwinnett County revenue bonds;
--$32,515,000 outstanding Urban Redevelopment Agency of Gwinnett revenue bonds.
The Rating Outlook is Stable.
The agency's bonds are payable solely from payments by the county pursuant to an intergovernmental contract in an amount sufficient to cover debt service. The county's payment obligations under the contract are backed by a pledge of the county's full faith and taxing power.
The Water and Sewer Authority's revenue bonds are payable solely from payments by the county pursuant to an intergovernmental contract in an amount sufficient to cover debt service. The county's payment obligations under the contract are backed by a pledge of the county's full faith and taxing power, and are additionally supported by a subordinate lien on the net revenues of the water and sewerage system.
The Development Authority's bonds are payable solely from payments by the county pursuant to an intergovernmental contract in an amount sufficient to cover debt service. The Development Authority's Georgia Research Park Bonds are backed by a pledge to levy a property tax of up to one mill for development purposes as per Georgia state statute. If funds are insufficient, the bonds are further backed by the county's pledge to use full faith and taxing power to pay debt service.
The county's 'AAA' IDR is supported by the county's strong revenue and expenditure flexibility, the maintenance of healthy reserves and a low long-term liability burden. Fitch views the county's commitments to the agency, the Water and Sewer Authority, and the Development Authority pursuant to the intergovernmental contracts to be equivalent to a general obligation pledge.
ECONOMIC RESOURCE BASE
Gwinnett County is located in north-central Georgia. The county seat, the city of Lawrenceville, is roughly 35 miles northeast of Atlanta. The county had a 2019 Census-estimated population of 936,250, which grew by more than 16% from the 2010 Census, exceeding state and national population growth trends. Income levels and the share of population with a bachelor's degree are above the state and national averages.
KEY RATING DRIVERS
Revenue Framework: 'aa'
Fitch expects general fund revenue growth to be between inflation and GDP due to ongoing population growth and development. Revenue-raising capacity is strong, as there is no legal limit to the property tax rate or levy.
Expenditure Framework: 'aa'
Fitch expects the pace of spending to generally align with revenue growth trends, as the county's service levels keep up with anticipated population growth. The county maintains significant expenditure flexibility, benefiting from low fixed carrying costs and the absence of collective bargaining.
Long-Term Liability Burden: 'aaa'
The county's liability burden is low and expected to remain relatively stable due to manageable debt plans, rapid debt amortization and affordable unfunded pension liabilities relative to the size of the county's economic resource base.
Operating Performance: 'aaa'
The maintenance of high reserves and superior inherent budget flexibility provide the county with superior financial resilience and gap-closing ability during the current economically challenged environment and future business cycles.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Factors that could, individually or collectively, lead to negative rating action/downgrade:
--Significant deterioration in the county's gap-closing capacity;
--Sustained growth in the long-term liability burden to consistently above 10% of personal income.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579].
Sectorwide Coronavirus Implications
The outbreak of the coronavirus and related government containment measures worldwide has created an uncertain global environment for U.S. state and local governments and related entities. Fitch's ratings are forward looking, and Fitch will monitor the severity and duration of the budgetary impact on state and local governments and incorporate revised expectations for future performance and assessment of key risks.
While the initial phase of economic recovery has been faster than expected, GDP in the U.S. is projected to remain below its 4Q19 level until at least 3Q21. In its baseline scenario, Fitch anticipates a slower recovery in early 2021, with vaccine rollout to vulnerable key workers and older individuals in 1H21 but limited for most of the population until late 2021. Additional details, including key assumptions and implications of the baseline scenario and a downside scenario, are described in the report "Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases -- Update", published on Dec. 7, 2020, and "Fitch Ratings Updates Coronavirus Scenarios for U.S. State and Local Government", published on Dec. 16, 2020 on www.fitchratings.com.
Gwinnett County Update
The county's unrestricted fund balance remained high in 2019 (fiscal year ending Dec. 31) at about $175 million, or 54% of general fund spending. The county typically budgets conservatively, and its 2020 budget included a $42 million use of general fund balance as a contingency reserve prior to the pandemic. Management currently estimates $4 million of reserves, leaving the county's unassigned general fund balance at $154.9 million, or 41% of spending at 2020 year end, exceeding the county's fund balance target of three months of expenditures plus transfers out.
Total general fund revenues are estimated to be just over $372.7 million in 2020, a 10% increase from 2019 revenues. Some general fund revenue streams, such as charges for services, which were down 18% yoy YTD through November 2020, are experiencing declines associated with the coronavirus-related economic pressure. However, 2020 revenues were aided by a planned reallocation of licensing and permitting revenues to the general fund in accordance with a new police services contract signed with member municipalities. Licensing and permitting revenues in the police fund have been replaced by an ad valorem tax. Property tax revenues account for approximately 70% of the total general fund budget and were not notably affected by the coronavirus pandemic. The county reported its collection rate was 97.4% in 2020 -- similar to the 2019 rate.
The county's adopted 2021 general fund budget totals $370.8 million, essentially holding spending flat from the 2020 budget. The budget incorporates a $18.9 million use of fund balance, or about 5.1% of budgeted expenditures. Gwinnett County received $225.4 million in Coronavirus Aid, Relief and Economic Security (CARES) Act funding. Much of the funding has been utilized in various governmental funds outside the general fund, including the police, fire and emergency medical services funds. The county had about $60 million left to spend in 2021 as of Jan. 31.
The county's location in the Atlanta MSA supports strong economic growth prospects with access to multimodal transportation and diverse employment opportunities. The county's unemployment rate, driven by steady employment gains prior to the pandemic, is consistently below state and national rates. In addition to the steady employment gains, the county experienced rising home values and new construction in recent years, helping it recover from the deep declines it experienced during the Great Recession and surpass its pre-recession peak. Growth in the tax digest is expected to continue as the area continues to experience commercial and residential development.
Tax revenues are the leading revenue source for county operations, comprising approximately 87% of total general fund revenues in 2019. The vast majority of these revenues comes from property taxes. Charges for services are the next largest contributor at approximately 9% of revenues.
General fund revenue growth was adversely affected by periods of contraction in the county's tax digest and property tax revenues during and following the Great Recession. Between 2008 and 2013, the county digest, which drives revenue growth, decreased by 20%. Growth resumed over the last several years, outpacing the rate of inflation but remaining below GDP and increasing over 6% on average for the five years ended 2020. Fitch believes future revenue growth absent policy action will be between inflation and GDP through typical economic cycles due to continued population gains, property appreciation and new development.
The county benefits from broad independent revenue-raising ability, as the county is not subject to any limitation on its property tax rate or levy.
The county's general fund spending is driven mainly by judicial services, public safety and general government.
Fitch expects the natural pace of spending growth to track revenue growth trends absent policy action, as has been the case historically. Fitch expects growth-driven demands to be supported by revenues associated with new development.
The county's expenditure flexibility is enhanced by its strong legal control over employee wages, benefits and work rules given the absence of collective bargaining. Carrying costs related to long-term debt and retiree benefits are equal to roughly 6% of governmental spending and are expected to remain low given the county's manageable debt plans, rapid repayment of outstanding debt and modest unfunded retiree benefits.
LONG-TERM LIABILITY BURDEN
The county's long-term liability burden is low at approximately 6% of personal income, attributable in part to a solid history of financing capital projects on a pay-as-you-go basis. In 2020, the county passed a resolution allowing for the issuance of $142.4 million in self-supporting water and sewer revenue debt that includes an additional full faith and credit pledge in 2023. Fitch would consider this debt to be self-supporting and therefore not counted in Fitch's debt burden metrics.
Since 1985, the county has benefited from the proceeds of voter-approved, one-cent special purpose local option sales tax (SPLOST) levies. In November 2016, county residents approved a SPLOST levy renewal for six years through 2023. The SPLOST is budgeted to bring in $150.4 million in 2021.
The county provides pension benefits to employees through a single-employer defined benefit plan. In 2019, the county's pension-reported ratio of assets to liabilities was estimated at 80% (based on a 7% investment rate of return assumption), or 71% using a Fitch-adjusted 6% rate. The Fitch-adjusted net pension liability was roughly $460 million, or 1% of personal income.
Fitch's scenario analysis highlights the county's superior financial resilience aided by the continued maintenance of healthy reserves and superior inherent budget flexibility. Fitch expects the county will maintain reserves at a level consistent with a 'aaa' financial resilience assessment through the current downturn and future economic cycles.
Management steadily increased general fund reserves as a percentage of spending, with the 2019 unrestricted fund balance reaching $175 million, or 54% of spending (including transfers out). County policy requires the maintenance of unassigned fund balance equal to at least three months of spending, which it is projected to exceed by almost two months in 2020.
The county has continually demonstrated prudent fiscal management through conservative budgeting. Actual results typically outperform the budget, allowing the county to increase reserves annually.
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
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