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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns an 'AAA' rating to the following general obligation (GO) bonds of Henrico County, Virginia (the county):

--$37.3 million GO public improvement refunding bonds, series 2012.

Bond proceeds will be used to advance refund various maturities of the county's series 2005 and 2006 GO bonds for debt service savings. The bonds will sell via negotiated sale the week of Sept. 10.

In addition, Fitch affirms the following ratings:

--$428.6 million GO bonds at 'AAA';

--$33.7 million Economic Development Authority of Henrico County (EDA) lease revenue bonds, series 2009A & B at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are general obligations of the county and the full faith and credit of the county will be irrevocably pledged. The lease revenue bonds are secured by rental payments made by the county to the EDA.

KEY RATING DRIVERS

DIVERSE ECONOMY SURROUNDING THE STATE CAPITAL: The county's diverse economic base, ample land supply and favorable location within the Richmond metropolitan area promotes continued development and expansion. The broad employment base supports relatively low unemployment rates and above-average wealth levels.

LOW DEBT BURDEN: Overall debt levels are expected to remain low due to the county's rapid amortization of principal, commitment to pay-as-you-go capital funding, and adherence to prudent debt policies.

FINANCIAL PROFILE REMAINS STRONG: Sustained excellence in financial management and planning has resulted in ample reserve levels and controlled expenditure growth.

APPROPRIATION DEBT LIEN ON ESSENTIAL ASSETS: The lease revenue bonds are subject to annual appropriation. A lien on essential government assets provides sufficient incentive to appropriate.

CREDIT PROFILE:

ROBUST ECONOMY

Henrico County benefits from its location, which surrounds Virginia's capital of Richmond (GO bonds rated 'AA+' by Fitch) on the northern side of the James River. The county's local employment base is substantial and diverse, representing about one-third of the Richmond metropolitan statistical area's (MSA) employment base. Since 2010 2,717 new jobs have been created in the county.

Capital One and Wells Fargo, the county's third and ninth largest employers, respectively, have both established call centers in recent years which have added a combined 920 new jobs. General Electric's announcement in April of 2011 of its new information security technology center has led to the creation of approximately 200 new high-tech jobs.

The county's June 2012 5.8% unemployment rate continues to improve and remains lower than the Richmond MSA average of 6.9% and the national average of 8.4% as well as the state average of 6%. Wealth indicators are at or slightly above state levels and solidly above national levels.

PRUDENT FISCAL MANAGEMENT

Financial management is very strong, as reflected in high reserve levels, detailed planning, and stringent expenditure controls. The county consistently meets its policy cap for the unassigned general fund balance at 18% of spending, with reserves ranging from 19.5% to 21.2% between fiscal 2006 and 2011. Fiscal 2011 ended with a $20.6 million net operating deficit after transfers (3.2% of general fund spending) resulting in an unassigned balance of 20.4%, well below the $48 million budgeted appropriation.

Reserves were used to fund the North Gayton road expansion, the revenue stabilization reserve designated for new facility operating costs, and the risk management self-insurance reserve. Fitch generally considers the assigned and committed as a source of flexibility when added to the unassigned fund balance. The unrestricted balance (the sum of assigned, unassigned and committed under GASB 54) totaled $217.6 million or an ample 33.3% of spending.

The majority of the county's revenues are generated from real estate tax revenues. The county's tax rate has not been increased since 1979 and is competitive with similarly sized localities.

RESERVES TO REMAIN HEALTHY DESPITE PROJECTED USE

The fiscal 2012 budget appropriated $15.2 million in designated fund balance to fund the revenue stabilization account. Due to conservative budgeting and an uptick in sales tax revenue receipts fund balance used is expected to be significantly less than the appropriation at year-end.

FISCAL 2013 BUDGET

The fiscal 2013 budget was adopted with no tax rate increase and a $20.4 million use of total fund balance. During the fiscal 2013 budget process, the board of supervisors decided to change the internal unassigned fund balance policy to 18% of general fund expenditures from 15% at fiscal year-end June 30, 2012. The difference between the 18% and 15% of about $22 million will be applied to a vehicle replacement reserve within the capital budget, which will fund replacement police vehicles, fire apparatus, and school buses, of which $6.6 million is part of the $20.4 million appropriation for the current year.

The appropriation also includes $3.9 million in funding associated with the opening of new facilities, which utilizes funds from the revenue stabilization fund which is part of the assigned fund balance. The remaining $10 million has been appropriated from the capital reserve portion of the assigned fund balance to construct school and general government projects. Despite the sizable appropriation, Fitch expects management to continue to maintain sound reserve levels and record positive operating performance prior to transfers out for capital.

FAVORABLE DEBT PROFILE

The county's strong debt profile is supported by adherence to conservative policies and above average amortization. Its overall debt burden has remained consistent at a low $1,932 per capita and 1.7% of market value. On a direct basis ($1,666 per capita and 1.4% of market value), the county's debt per capita is slightly above the conservative $1,650 debt per capita policy based on 2010 census data but in-line with the 1.49% of valuation policy. Debt service expenditures for fiscal 2011 accounted for an affordable 7.6% of general fund expenditures, which is below the 7.75% internal target. Principal is retired at a solid 60% amortization rate within 10 years.

The debt burden is expected to remain low due to the absence of any additional borrowing plans over the next five years according to the county's five-year capital improvement plan (CIP). The CIP totals $1.83 billion of which $1.25 billion is related to general capital projects. Just $84.1 million of the projects are currently funded with pay-go and are discretionary.

County employees participate in the state-administered Virginia Retirement System, and the county makes annual payments as determined by the state that equal its annual required contribution (ARC). The total unfunded liability is modest at less than 1% of market value. The county offers other post-employment benefits (OPEB) and fully funds its ARC. Combined pension and OPEB costs accounted for just 6.4% of spending in fiscal 2011.

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, Virginia Employment Commission.

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 ]

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