Fitch Ratings has affirmed the following Ventura County Public Financing
Authority, California's (PFA; the authority) ratings:
--$326.4 million lease revenue bonds, series 2013A and 2013B at 'AA'.
In addition, Fitch has affirmed Ventura County, California's (the
county) implied general obligation (GO) bond rating at 'AA+'.
The Rating Outlook is Stable.
The lease revenues bonds are repaid by lease payments from the county to
the authority for use of certain medical and public safety facilities,
subject to abatement. The bonds additionally are secured by a
cash-funded debt service reserve fund sized to 50% of maximum annual
KEY RATING DRIVERS
SOLID FINANCIAL OPERATIONS: The 'AA+' implied GO bond rating reflects
the county's sound financial cushion, years of operational surpluses,
prudent expenditure reductions and pension reform measures, and a
significant degree of remaining expenditure flexibility.
SOLID LEGAL STRUCTURE: The lease revenue bonds' one-notch distinction
from the implied GO bond rating reflects the sound legal structure,
including a covenant to budget and appropriate lease payments, essential
leased assets, standard insurance provisions, and 24 months of rental
ABOVE-AVERAGE LOCAL ECONOMY: The moderately diverse local economy is
strong, with high income levels, a strongly rebounding tax base, an
improving unemployment rate, and adequate access to the large and
diverse Los Angeles employment market.
SOUND DEBT PROFILE: The county's debt burden is low, capital needs are
limited, the pension system is conservatively managed, and the
other-post employment benefits (OPEB) liability is minimal. However,
debt amortization is slow when medical center debt is taken into account.
GOOD MANAGEMENT PRACTICES: The county has been exceeding its sound
minimum 15% unassigned general fund balance policy, the budget must be
structurally balanced by policy, and labor relations are largely good.
The rating is sensitive to shifts in fundamental credit characteristics
including the county's strong financial operations and management
practices. The Stable Outlook reflects Fitch's expectation that such
shifts are unlikely.
Ventura County serves a population of approximately 846,000 residents,
with close proximity to Los Angeles to the southeast and Santa Barbara
to the northwest. The county benefits from adequate access to the large
and diverse Los Angeles employment market, and the local economy is
HISTORICALLY AGRICULTURAL ECONOMY NOW MODERATELY DIVERSIFIED
In recent decades the county has diversified away from its agricultural
roots, with major employers in government, health care, the oil and gas
industry, technology, and military. However, agriculture still plays a
significant role in the economy, with residents supportive of policies
meant to prevent conversion of farmland to other uses. The county's
largest employer is the Naval Base Ventura County, with 18,000
employees. No personnel reductions are expected at that naval base.
The local economy benefits from above-average income levels. Median
household income equals 125% and 144% of state and national levels,
respectively. Poverty levels at 11.1% of the population also compare
well to the state and national rates of 15.9% and 15.4%.
Employment levels contracted significantly in 2009 and only just
recovered to peak levels in 2014. In August 2015, county unemployment
was 5.9% (compared to 7.0% a year prior), in line with the state's
unemployment rate (6.1%) but above the nation's (5.2%).
DIVERSE, REBOUNDING TAX BASE
The county's tax base is well-diversified, with the top 10 payers making
up just 4.7% of assessed value (AV). The tax base performed moderately
well during the recession, contracting 4.1% in fiscals 2010-2012. This
performance was helped by the maturity of a significant portion of the
county's housing stock, particularly in coastal regions. Subsequently,
the tax base rebounded strongly by 10.9% through fiscal 2015, with a
further 4.1% increase projected for fiscal 2016. This reflects the
recapture of the majority of the county's Proposition 8 revaluations
during the recession, plus turnover, new development, and house-price
recovery. The county is projecting strong ongoing AV growth, even though
current low oil prices have reduced the valuations of key local property
taxpayers in the oil and gas industry.
SOUND FINANCIAL PERFORMANCE
The county's financial performance has been very good, with six
consecutive years of audited general fund operating surpluses and an
unaudited surplus in fiscal 2015. General fund operations in fiscal 2014
resulted in a $38.9 million operating surplus (after transfers), raising
the total and unrestricted fund balances to sound levels of $323.8
million (36.6% of spending) and $188 million (21.3%), respectively. The
large difference between the total and unrestricted general fund
balances is due to a number of trust funds for monies received (for
example from state and federal sources) but not yet expended for
specific purposes and cash flow loans to other county agencies.
The county's fiscal 2015 general fund operations are projected to
produce a robust surplus of approximately $30 million, largely the
result of setting monies aside for capital projects. The county expects
to exceed its minimum 15% unassigned general fund balance reserve
policy, as it did in fiscal 2014. The county's fiscal 2016 adopted
budget is balanced as required by county policy, without appropriating
During the recession the county implemented prudent and incremental
expenditure reductions and significant pension reforms, froze wages, and
eliminated positions through attrition without having to make severe
cuts to programs and staff. County policy has generally been not to
backfill any reductions in funding for state programs and to negotiate
somewhat flexible labor contracts. As a result, the county's expenditure
flexibility remains high. Nevertheless, the county faces negotiated and
projected personnel cost increases through fiscal 2019 as it provides
annual cost of living adjustments, restores some classifications to
market rate salaries, and amortizes its pension liabilities swiftly.
COUNTY WILL FACE ONGOING HIGH PENSION COSTS
Pension benefits are provided for most county employees through the
Ventura County Employees' Retirement Association (VCERA), a defined
benefit plan. The actuarially funded ratio for fiscal 2014 was 82.6%.
This drops to a somewhat weaker Fitch-estimated 76.3% after the discount
rate is lowered to 7.5% from 7.75%. The unfunded liability likely will
narrow faster than many other pension systems' due to a rapid 15-year
amortization period and no investment loss corridor. Fitch regards this
rapid amortization as a credit positive but notes that the county's
conservative approach to pension system funding will require ongoing
budget absorption of high annual pension costs going forward.
COUNTY MEDICAL CENTER ON SOUND FINANCIAL FOOTING
The county runs a medical center. Fitch does not view this as a material
credit weakness because the center has been financially well-managed and
the county's operating subsidy has held steady at $15.2 million annually
for several years (1.7% of fiscal 2014 general fund expenditures and
transfers out). County policy caps the subsidy at this dollar amount
moving forward. Net of the subsidy, the hospital has increased its net
assets in the last few years with the exception of fiscal 2015, which
saw an $8.5 million loss because of a new system implementation. Under
the Affordable Care Act, county management expects the medical center to
generate balanced-to-surplus operations going forward as a preferred
provider of care to formerly uninsured patients.
SOUND DEBT PROFILE
The county's debt profile is good overall, but is weighted somewhat by
slow debt amortization (when medical center debt is taken into account)
and the high ongoing pension costs. Repayment is slow with approximately
38% of principal retiring in 10 years.
The county's overall debt burden, net of self-supporting medical center
debt, is a low $1,870 per capita or 1.4% of AV. The county has limited
exposure to variable-rate debt, and its capital needs are small after
this issuance. The county's OPEB obligation is minimal, consisting
largely of an implicit subsidy.
Annual debt service, actuarially required pension contribution, and OPEB
pay-as-you-go carrying costs are affordable at 15.5% of total
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to less than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
In addition to the sources of information identified in the applicable
criteria specified below, this action was informed by information from
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
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