Fitch Affirms Fauquier County, VA's GO Bonds 'AA+'; Outlook Stable

Fitch Ratings has affirmed the following Fauquier County, VA (the county) bonds:

--$13.3 million GO school refunding bonds, series 2012 at 'AA+',

--$27 million GO school bonds, series 2006 at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county, for which its full faith and credit are irrevocably pledged.

KEY RATING DRIVERS

STABLE FINANCIAL PROFILE: Sound county financial operations include stable reserve levels in accordance with a prudent fund balance policy and a solid liquidity position.

FAVORABLE DEBT POSITION: Limited intermediate-term debt plans will allow the county to maintain the current low debt burden. Long-term obligations related to pension and retiree health benefits do not pressure the credit profile.

NARROW BUT AFFLUENT ECONOMIC BASE: Though largely rural in character the county benefits from its proximity to employment opportunities in the thriving Northern Virginia job market which have contributed to strong economic indicators, including high wealth levels and low unemployment.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Fauquier County is located 40 miles southwest of Washington DC, and is largely rural and agrarian in nature. Development activity is centered in the county's nine service districts and three incorporated towns, reflecting the county's stated intention to retain its rural character.

PROXIMITY TO NORTHERN VA MARKETS SPUR STRONG ECONOMIC METRICS

With a well-educated workforce and close proximity to vibrant labor markets the county has maintained low unemployment rates and high wealth indicators. Roughly 79% of residents commute outside of the county for employment, primarily to Fairfax, Prince William, and Loudoun counties. As of November 2013, the county's unemployment rate of 4.1% was well below that of the state's 5% and nation's 6.6%. Median household income is approximately 40% to 70% higher than that of the state and nation, respectively, according to census data. The majority of county businesses are small in nature, with 91% having fewer than 20 employees.

In the fall of 2013 Fauquier Health merged with LifePoint Hospitals, leading to the inclusion of the hospital on the county's tax roll for the first time commencing fiscal 2014. The county is projecting roughly $1 million in recurring real estate tax revenues from this property in addition to property tax revenues for machinery and equipment.

SOUND FINANCIAL MANAGEMENT AND HEALTHY RESERVE LEVELS

Financial operations are sound, as evidenced by consistent maintenance of reserves in line with the adopted fiscal policy of an unassigned fund balance at 10% of general operating revenues. Following two consecutive operating deficits for capital, fiscal 2013 ended with a general fund operating surplus after transfers increasing the unrestricted fund balance to $23.6 million, or 15% of spending.

The adopted fiscal 2014 budget increases spending by 2.5% over the prior year's budget and includes a $1.5 million fund balance appropriation for capital and other one-time costs. Property taxes account for approximately 70% of general fund revenue. The budget includes a property tax increase of one cent to $0.98 per $100 of assessed value in order to fund additional fire and rescue staff. The tax rate is relatively high for the state although it is regionally competitive. Furthermore, the county is not subject to any legal or statutory restrictions on the property tax rate or levy. The next tax base revaluation will be effective January 1, 2014 and county management is expecting a modest increase over the 2013 assessed valuation. Early indications by management show permitting fees and sales tax revenues performing well.

LOW DEBT LEVELS

Debt levels are modest with overall debt equaling 1.1% of market value and $2,008 on a per capita basis. Amortization is rapid at 69% repaid within ten years. Debt levels are expected to remain fairly low with only limited debt issuance anticipated over the next few years. The county has no exposure to variable rate debt.

The fiscal 2014 - 2019 capital improvement plan (CIP) totals $99 million, with projects geared to general government needs, utility funding, school requirements, and an expansion of the county's landfill. Cash funding is slated for $10.6 million over the course of the plan, consistent with the county's history of solid pay-as-you-go capital financing.

LIMITED OTHER LONG-TERM LIABILITIES

All full-time, salaried, permanent employees of the county participate in the Virginia Retirement System (VRS), an agent and cost sharing multiple employer defined benefit pension plan administered by the Commonwealth. The county portion of the VRS is well-funded at 79%, using a 7% return on investment assumption. The county's unfunded actuarial accrued liability (UAAL) as a percentage of market value is a low 0.16%.

OPEB liabilities are manageable. The county prudently contributes the full OPEB ARC and the total unfunded liability is less than 1% of market value. Notably, the county has established a trust to prefund its OPEB liability which Fitch views favorably. The carrying costs for debt service, pension, and OPEB totaled a low 10.9% of total governmental fund spending in 2013.

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

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, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816010

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