Fitch Ratings affirms the following Tulare County, California
(the county) ratings:
--Implied general obligation (GO) at 'AA-';
--$11.5 million 1998 certificates of participation (COPs) at
'A+'.
The Rating Outlook is Stable.
SECURITY
The COPs are backed by the county's covenant to annually budget
and appropriate lease rental payments for the use and occupancy of
certain essential governmental facilities, subject to abatement,
and are supported by standard insurance requirements and a
cash-funded debt service reserve fund.
KEY RATING DRIVERS
STABLE AGRICULTURAL ECONOMY: Tulare County's economy is
primarily based on agriculture with correspondingly low income and
wealth levels, as well as high unemployment. The county's economy
has benefited from continuing strong demand for agricultural
commodities but faces risks from prolonged drought conditions.
HEALTHY FINANCIAL POSITION: The county has maintained
consistently balanced operations. Unrestricted general fund
balances are healthy and the county retains considerable financial
flexibility.
MANAGEABLE LONG-TERM LIABILITIES: Overlapping debt levels are
low and outstanding direct debt amortizes rapidly. Carrying costs
for debt service and retiree benefits are low.
RATING SENSITIVITIES
FINANCIAL POSITION KEY: Deterioration in the county's financial
position, whether due to drought impacts or other factors, would
result in downward rating pressure. Continued stable operations and
increases in reserves, conversely, would add upward rating
pressure. The Stable Outlook reflects Fitch's expectation that such
shifts are unlikely.
CREDIT PROFILE
Tulare County is located near the geographic center of
California and has a population of approximately 450,000. The
county's borders stretch from the Central Valley to the peaks of
the Sierra Nevada Mountains, and include large portions of national
forests and parklands. The local economy is concentrated in the
agricultural sector and Tulare County is the largest producer of
dairy products in the U.S., with milk production alone valued at
$2.1 billion in 2013, and total agricultural production nearing $8
billion.
STABLE ECONOMY; DROUGHT RISKS
Consistent with this agricultural context, wealth and income
levels for county residents are low, at 60 - 80% of state and
national averages. Unemployment rates have consistently exceeded
national benchmarks and remain very high at 13.9% as of January
2015. Total employment and labor force levels have declined
approximately 2% to 3% over the past year, which may reflect
drought-related cuts in agricultural production. Population growth
has been relatively high at about 1.9% annually, roughly double
state and national rates.
Taxable assessed values (TAV) were generally stable through the
last recession and have seen moderate growth in its wake, supported
by strong demand for agricultural properties and a limited rise in
residential values prior to the downturn. Fiscal year 2015 TAV
levels were nearly 7% higher than 2009's pre-recession peak.
The county's stable economy could be tested by California's
extended drought. Water allocations to many area farmers have been
severely cut for a third consecutive year, resulting in increasing
acreage pulled from production. Strong prices for agricultural
commodities have helped to mitigate economic losses to date, but a
persistent drought has the potential to reduce land values and
property tax revenues over the long-term.
HEALTHY FINANCIAL POSITION
The county recorded a general fund surplus after transfers in
each of the past four fiscal years and is on track for continued
surplus performance in fiscal 2015. Unrestricted fund balance of
$77.2 million at the end of fiscal 2014 was equivalent to 13.1% of
general fund spending. Ongoing management actions to align
expenditures and revenues have supported these results, as has a
strong rebound in tax revenues, which increased at a 4.9% compound
annual growth rate over the past five years. A planned expansion of
the county's jail capacity could increase expenditure pressures but
will not become operational for several years. Fitch expects the
county to maintain balanced operations despite such challenges
based on its strong record of reducing spending to match available
resources.
LIMITED LONG-TERM LIABILITIES
The county has limited exposure to long-term liabilities. Debt
levels are fairly low, with overall debt at $1,494 per capita or
2.4% of AV. Amortization is rapid with 88% of direct debt due for
payment within five years. The county's pension plan is adequately
funded at an estimated 81% of liabilities under Fitch's 7%
investment return assumption. Liabilities for other post-employment
benefits are limited to the cost of an implicit subsidy for
retirees who participate in the county's group health insurance
plan at their own cost. Carrying costs for debt service and retiree
benefits were notably low at 6% of governmental expenditures in
fiscal 2014.
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.
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
Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating
Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation
Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982081
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Fitch RatingsPrimary AnalystStephen Walsh,
+1-415-732-7573DirectorFitch Ratings, Inc.650 California Street,
4th floorSan Francisco, CA 94108orSecondary AnalystYueping Liu,
+1-415-732-5629Associate DirectororCommittee ChairpersonAmy Laskey,
+1-212-908-0568Managing DirectororMedia Relations, New
YorkElizabeth Fogerty,
+1-212-908-0526elizabeth.fogerty@fitchratings.com