Fairfax County Retains Triple A Bond Rating, Disagrees With Negative Outlook

Jan. 8, 2014

News Highlights

  • Fairfax County Retains Triple A Bond Rating from Moody's, Standard & Poor's and Fitch Ratings.
  • County disagrees with Moody's assignment of a negative outlook; ignores strong fiscal management and strength of tax base.
  • Negative outlook is not anticipated to have a meaningful impact on the County’s upcoming General Obligation Bond sale.

As part of its annual capital program, Fairfax County will sell General Obligation Bonds on Jan. 23 in the amount of $289.6 million primarily for schools ($155 million), public safety ($50 million), transportation and Washington Metropolitan Area Transit Authority (WMATA) ($59.5 million). The County’s Triple A Bond Rating was affirmed by all three bond rating agencies: Standard & Poor’s, Fitch Ratings and Moody’s Investors Service, which cited County strengths such as: strong and diverse economic base, above average wealth levels and a history of adherence to strong financial policies. In addition, Standard & Poor’s and Fitch reaffirmed the stable outlook for the County. 

However, in reaffirming the County’s Triple A Bond Rating, Moody’s assigned a negative outlook to the County’s bond rating. Fairfax County disagrees with Moody’s assignment of the negative outlook as it ignores the County’s strong fiscal management and the strength of its tax base. The County has maintained its Triple A ratings through many economic cycles and changes. In assigning the negative outlook, Moody’s notes areas of concern including the County’s reserve balances and pension liability funding. The County anticipates this negative outlook will have no meaningful impact on the County’s upcoming General Obligation Bond sale. When Moody’s placed the County on negative outlook as a result of the indirect linkage with the Federal Government between August 2011 and July 2013, there was no appreciable impact.

The County has demonstrated strong financial flexibility through a combination of reserves, budgetary cuts and tax rate changes. The County believes Moody’s approach has overemphasized reserves as an indicator of financial flexibility in their analysis, and that the County’s existing reserve structure is adequate based on the various other forms of financial flexibility available to the County and the County’s conservative budgeting practices for both revenue and expenditures. Fairfax County has maintained full funding of its two General Fund reserves: 2 percent of General Fund Disbursements (the Managed Reserve) and 3 percent of General Fund Disbursements (the Revenue Stabilization Reserve) since Fiscal Year (FY) 2006.  Beyond these two reserves, the County has access to additional areas of financial flexibility that have proven to be effective during the recession, namely the willingness and ability to raise its Real Estate Property Tax Rate and make significant expenditure reductions. Additionally, there was and continues to be financial flexibility through available reserves that are accounted for outside the General Fund including replacement reserves for vehicles, public safety apparatus, technology equipment and potential losses associated with the County’s self-insurance programs. 

In 2002, the County adopted the Corridor Funding approach to its pension liabilities. This policy, in practice for over a decade and validated annually by the County’s actuaries, has been designed to decrease the year-to-year volatility of the County’s annual contribution rates as a percent of payroll. The County has consistently funded its pension systems in accordance with the funding levels required in County Code. Following the global recession and weak investment returns in FY 2008, the County committed to fund its pension systems beyond the minimal annual amount that is calculated in accordance with County Code. Moody’s action discounts this historical trend of appropriately funding the County’s systems as well as the County's deliberate action to increase funding to its pension systems over the past few years.  In 2013, Moody’s changed its own rating criteria for the evaluation of pension funding levels. The County believes Moody’s assignment of the negative outlook reflects a change in Moody’s rating methodology and not any deterioration in the strength of the County’s pension funding given that funding ratios improved in 2013 for all three County pension plans. 

Fairfax County has and will continue its long-standing adherence to its Ten Principles of Sound Financial Management. Fairfax County has a strong history of taking decisive actions to meet its financial obligations.  It has weathered projected deficits, taken programmatic reductions and eliminated positions to ensure its financial strength. It is disappointing that Moody’s did not recognize the totality of the factors which make Fairfax County’s credit strong, but the County believes this is due to a change in their methods (similar to action taken by Moody’s in 2011 linking the County’s credit to the Federal Government rating), and not a change in the County’s approach to sound and prudent financial management. Fairfax County’s long standing commitment to fiscal stability and our implementation of balanced budgets in the worst of times has been an unwavering hallmark of our approach for over 40 years.   

Lastly, the strong and resilient demographics of the County should not be discounted as noted by the following highlights:

  • Top nationally ranked wealth levels.
  • Top nationally ranked education levels and school system.
  • Low unemployment.
  • Assessed values are expected to increase 4 percent in FY 2015.
  • Sales tax revenue is increasing.
  • Ten Fortune 500 companies are headquartered in Fairfax County.

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