Fitch Rating Service announced today an upgrade to Stafford’s bond rating for lease revenue bonds from AA- to AA citing two key drivers: superior economic and financial performance. "The county has demonstrated significant financial resilience," Fitch states. "Strong revenue performance and consistently prudent budgeting have produced increasing reserve levels despite the recent economic downturn."

"This upgrade reflects the strength of Stafford County's commitment to fiscal discipline and accountability," said Board of Supervisors Chairman Susan Stimpson. "In 2010, our Board adopted a 10-point economic development plan that outlined our vision and we aggressively adopted the practices within our economic plan, to include tax cuts, spending cuts, increased reserves and a focus on economic development. Our most recent bond rating upgrade is further confirmation that the Board’s long-range financial plan is working. Investors and businesses reward those who provide a vision and have the discipline to follow through on it."

Stafford adheres to several strict financial policies that include maintaining a balanced budget, borrowing money only for capital projects, maintaining reserves, estimating revenues conservatively and spending less than adopted budgets that have improved the County’s financial standing.
In its report, Fitch says "the county entered and emerged from the recession with strong reserves and financial flexibility, which Fitch notes as a positive credit factor. Over the last few fiscal years, the county has budgeted revenues conservatively and observed consistent growth in overall tax revenues. The county has budgeted conservatively on the expenditure side as well, with actual spending coming in below budgeted expenditures by 3%-8% annually since 2004."

“Stafford has consistently recorded positive results of operation and has met or exceeded fund balance and reserve levels. Additionally, the County is reducing reliance on debt to meet capital needs. These changes over the last five years have made the rating improvement a reality,” said Cord Sterling, Rock Hill District, and chairman of the Board’s Finance, Audit and Budget Committee. “The Board's fiscal restraint and budget practices are in stark contrast to the federal government. The unrestrained spending at the federal level is not working and our nation received a rating downgrade, but our fiscal restraint has had the opposite effect; we received an upgrade.”

Indeed, Stafford has made much progress with its finances during this economic downturn. In 2010, Fitch Ratings affirmed Stafford’s AA general obligation bond rating after routine surveillance to review the County’s credit standing. The affirmation validated the County’s commitment to fiscal discipline and proactive budget management.

Last year, Standard and Poor’s raised the County’s general obligation bond rating from AA- to AA. The agency said in a statement that “the upgrade reflects Standard and Poor’s assessment of the County’s strong economic fundamentals and good financial policies and practices, which have helped management maintain what Standard and Poor’s considers a strong financial performance despite the recession’s effect on housing values and economically sensitive revenue.”

Most recently, FY12 ended with $5.1 million positive results of operations. The average residential tax bill has also decreased 11% (inflation adjusted) over the last five years. At the same time, funding was prioritized by the Board to public safety and education, as well as voter approved projects for transportation and parks and recreation.

In spite of concerns regarding sequestration, in terms of how those cuts may affect Stafford, Fitch states:

"Defense budget cuts due to sequestration are possible in 2012, but Fitch does not expect these potential cuts to have a significant effect on the county’s military facilities due to their essentiality. The county also mitigates sequestration risk with conservative budgeting, strong financial reserves, and continued diversification into the retail, business services, higher education, hospitality, and health care sectors. The newly opened Stafford Technology and Research Center also increases the County’s presence in technology. Fitch expects increased economic diversification as the county attempts to offset potential changes in longer term military spending.”

Rating agencies focus on four major areas when reviewing a community’s financial standing: the economy, finances, debt and financial management, and governance. A high bond rating means that the County can borrow money at a low cost, ultimately saving taxpayer money.

Other factors that influenced Fitch’s rating for Stafford included the county’s strong reserves and financial flexibility during the recession. The agency also praised the county’s management long-term obligations, stating that overall debt is moderate, and that it does not expect the county’s capital projects to pressure the credit given the current debt burden and the size of capital needs. Fitch also noted that the County fully implemented the state’s new pension reform.

Full Text From the Report Below

FITCH UPGRADES STAFFORD COUNTY, VA'S $37MM LEASE REVENUE BONDS TO 'AA'; OUTLOOK STABLE

Fitch Ratings-New York-23 October 2012: Fitch Ratings has upgraded the following rating for
Stafford County (the county) Economic Development Authority (EDA), Virginia:

--$36.8 million EDA lease revenue bonds, series 2008 to 'AA' from 'AA-'. The Rating Outlook is Stable.
SECURITY

The lease revenue bonds are limited obligations of the EDA of Stafford County, payable from payments to be made by the county, subject to appropriation, pursuant to a Master Trust Agreement. The lease revenue bonds are additionally secured by a Deed of Trust granting a lien on certain essential government assets.

KEY RATING DRIVERS

UPGRADE DRIVEN BY SUPERIOR ECONOMIC AND FINANCIAL PERFORMANCE: The upgrade reflects the county's strong degree of financial flexibility as illustrated by positive socio-economic metrics and maintenance of healthy financial reserves during the recent economic downturn. County wealth and income metrics outperform the state and nation.

MODERATELY CONCENTRATED ECONOMIC BASE: Moderate concentration in the government and military sector exposes the county to risks arising from potential nationwide defense cuts in 2012. These risks are mitigated in part by the recognized essentiality of these facilities.

MANAGEABLE DEBT PROFILE: Debt levels are moderate, and other long-term obligations and future capital needs are not expected to pressure the credit.

LEASE REVENUE BONDS APPROPRIATION RISK: The 'AA' rating on the lease revenue bonds reflects the county's general creditworthiness, the inherent appropriation risk, and the essentiality of the assets securing the lien.

CREDIT PROFILE

UPGRADE REFLECTS CONSISTENTLY STRONG FINANCIAL AND ECONOMIC PERFORMANCE

The county has demonstrated significant financial resilience. Strong revenue performance and consistently prudent budgeting have produced increasing reserve levels despite the recent economic downturn. The county has also shown positive growth in population, employment, and income, and it continues to diversify its economic base from the federal government.
GROWING ECONOMIC BASE WITH SOME EXPOSURE TO SEQUESTRATION RISK Stafford County is located 25 miles south of Washington D.C. and 50 miles north of Richmond, and
it benefits from its easy accessibility to several interstate highways. The county's main economic
driver is the federal government. Quantico Marines Corps Base extends over three local governments, including over 30,000 acres in Stafford County, and provides the county with long-term employment stability. Quantico continues to expand due to recent Base Realignment and Closure (BRAC) legislation. The FBI is also one of the county's largest employers. More than 25%

of the county's total labor force works in government.

Defense budget cuts due to sequestration are possible in 2012, but Fitch does not expect these potential cuts to have a significant effect on the county's military facilities due to their essentiality. The county also mitigates sequestration risk with conservative budgeting, strong financial reserves, and continued diversification into the retail, business services, higher education, hospitality, and health care sectors. The newly opened Stafford Technology and Research Center also increases the county's presence in technology. Fitch expects increased economic diversification as the county attempts to offset potential changes in longer term military spending.

STRONG SOCIO-ECONOMIC METRICS

The county's unemployment rate has consistently trended below regional, state, and national levels. In August 2012, the county's unemployment rate was 4.6%, compared to the U.S. average of 8.2%. The county's high 2010 median household income, which was 152% of the state and 179% of the nation, is largely attributable to the county's highly educated labor force. Since 2007, the county's population has grown almost three times as fast as the national average, which is partially attributable to BRAC-related expansion at Quantico. Despite the growth, the county reports no significant growth-related capital pressures.

STRONG FINANCIAL PROFILE WITH CONSERVATIVE BUDGETING

The county entered and emerged from the recession with strong reserves and financial flexibility, which Fitch notes as a positive credit factor. Over the last few fiscal years, the county has budgeted revenues conservatively and observed consistent growth in overall tax revenues. The county has budgeted conservatively on the expenditure side as well, with actual spending coming in below budgeted expenditures by 3%-8% annually since 2004.

In fiscal year (FY) 2011, the county outperformed its budget and had a $12.5 million net operating surplus, equating to 5.3% of total general fund spending. Unrestricted fund balance, which Fitch measures as the sum of committed, assigned, and unassigned balance per GASB 54, increased to a solid 20.6% of total spending in FY 2011. Positive budget variances in FY 2012 (unaudited) are expected to produce a $6.1 million net operating surplus, which would increase FY 2012 unrestricted fund balance to 22.6% of total spending.

The FY 2013 budget is balanced without a fund balance appropriation. The county's main revenue source, property tax revenues, is projected to equal nearly 75% of total revenues. In 2012, taxable assessed value (TAV) increased by 2%. Fitch considers the county's projections of similar annual TAV growth over the next few years to be achievable. The county expects continued compliance with its policy of maintaining an unassigned fund balance greater than 12% of annual general fund revenues.

MANAGEABLE LONG-TERM OBLIGATIONS

Overall debt is moderate, equaling 2.5% market value and $2,869 per capita. Amortization is about average with 55% of principal retired within 10 years. In the near future, the county expects to borrow about $33 million to fund improvements to county schools. The county may also issue up to
$15 million in general obligation bonds in 2013. The county has no short-term debt.

The county's FY 2012-2017 capital improvement plan (CIP) totals a manageable $387 million and will be funded by a mix of bonds, lease revenue bonds, state and federal funding sources, and pay-go. The largest projects are school and transportation-related. More than 50% of total project costs will be funded by bonds, while almost 10% will be funded by pay-go. Fitch does not expect the county's capital projects to pressure the credit given the current debt burden and the size of capital needs.

All full-time and salaried county employees participate in the Virginia Retirement System (VRS), which is a cost-sharing multiple-employer defined benefit pension plan. The FY 2011
Fitch-adjusted funded ratio was a satisfactory 71.7%. The county paid its FY 2011 annual required

contribution (ARC) for VRS, equal to 2.5% of spending. Similarly, the county's FY 2011 other post-employment benefit (OPEB) ARC was a low 1.4% of spending.

The FY 2013 budget illustrated further financial flexibility as the county fully implemented the state's new pension reform requirement, which requires employees to pay 5% of pension costs but also requires local governments to provide a corresponding salary increase. Total carrying costs, as calculated by dividing debt service, pension, and OPEB costs by general fund spending, equals a moderate 19.3%. Fitch does not expect post-employment benefit obligations to pressure the credit.

LEASE REVENUE BONDS SECURED BY ESSENTIAL ASSETS

Debt service payments for the lease revenue bonds are subject to annual appropriation. The lease revenue bonds are additionally secured by a deed of trust granting a lien on several essential leased assets including a library, courthouse, and communications system. The current value of these assets exceeds total principal outstanding.