Despite the tough economic times, Orange County has managed to secure the second highest rating awarded by Fitch, AA+. The good news on the county’s credit came as a surprise to Supervisor John Moorlach.
“We’re all struggling,” said Supervisor Moorlach in an email to PublicCEO. ”So it is very nice to receive an unsolicited affirmation from Fitch.”
The credit rating company cited a variety of factors that had a positive impact on the score. Among the most important, however, was that the County has controlled much of its spending, and the debt levels are low.
“County debt levels are low as a result of significant pay-as-you-go capital financing and limited new debt issuing,” said the rating agency in a release. “98 percent of the county’s outstanding debt will be repaid within 10 years.”
Orange County has benefitted from its broad and vibrant economy. Despite the economic downturn that forced the County to overcome multiple years of budget deficits, they continue to add money to their reserve account and maintain sound fund balances. The County still maintains a 10 percent reserve of general fund expenditures, or roughly $267 million.
“Orange County’s credit strength relies primarily on its large, diverse, and wealth economic base,” read the release.
Additionally, the County’s housing prices have remained mostly stable since the massive declines between 2006 and 2009, and the unemployment rate in the county has improved to 7.8 percent.
However, the work is not done for the County, in the opinion of the Fitch analysts.
“Budget gaps in recent years have been addressed through the elimination of more than 1,500 positions, ongoing wage freezes, and substantial revisions to retirement benefits,” read the report. “After five years of such expenditure controls, future budget gaps may prove more difficult for the county to overcome. Fitch expects the county to make additional spending adjustments to address such gaps. Further use of reserves, however, would increase downward rating pressure.”
Complicating the fiscal scenario for Orange County is its exposure to Sacramento politics. The report mentions that the County relies upon state funding, and those funds have been targeted time and again to balance the books at the State level.
“Being an agent of the state is like living under hanging daggers,” said Moorlach of the relationship. “SB 89 is just one example of the state trying to pick our lean pockets.”
SB 89 is the much reviled midnight raid of motor vehicle fees that should have gone to cities.
One of the largest areas of internal exposure for the county is its pension liabilities, which is currently underfunded by $3.8 billion. In the coming years, the county will need to find a way reduce its liability, and Fitch expects that County contributions will have to increase over the next 5 years.
The General Obligation bond rating wasn’t the only one announced. Six other ratings were announced, none receiving lower than AA.