Fitch Rates Oconee County, South Carolina $5MM GOs 'A+'

Business Wire, July 11, 2002

Business Editors

Fitch Ratings assigns Oconee County, SC's approximately $5,000,000 general obligation bonds, series 2002 an 'A ' rating. The bonds are scheduled to sell competitively on July 16. Fitch affirms its 'A ' rating on the county's $15.79 million in outstanding general obligation debt.

The 'A ' rating is based on Oconee County's low debt with rapid amortization and strong financial position, offset by significant tax base concentration and the predominance of manufacturing employment. Duke Energy Corp. (secured obligations rated 'AA-' by Fitch) owns three generating plants in the county that account for 31% of the fiscal 2002 tax base. The company expects to invest nearly $1 billion in its Oconee facilities over the next three to five years, which should increase its assessed valuation and reverse the recent trend of small declines as the assets depreciate. Manufacturing accounts for about 37% of county employment, and is primarily focused on textiles, industrial machinery and equipment, and instruments and related products. Reflecting the dependence on manufacturing, unemployment levels have risen sharply in the last year, and labor force and employment levels have been somewhat volatile.

Oconee County is in the northwestern corner of South Carolina, bordered by Georgia to the west and North Carolina to the north. About 60% of the 654 square-mile land area is parks and forests, and tourism in the county is based on its recreational opportunities. The estimated 2001 population is 67,407, and population grew 15% in the 1990s. Residential development is taking place along the county's extensive lakefront, with much of the growth among retirees. Officials expect residential growth to result from expansion of the Greenville area and from faculty and staff of Clemson University, across Lake Hartwell from Oconee. West Point Stevens, a textile manufacturer, is by far the county's largest employer, followed by Duke Energy. The county's labor force and residential employment have shown year-to-year volatility but are about the same as ten years ago. The number of manufacturing jobs in the county declined from 41% of the total to 37% over the last five years, and the percent of income derived from those jobs has declined accordingly. Unemployment rose to 6.2% in 2001 from 3.8% in 2000, and averaged 7.2% in the first four months of 2002. The increase in statewide unemployment has been less dramatic, growing to 5.4% in 2001 from 3.9% in 2001, and to 5.3% in April, 2002 from 4.7% in April, 2001. The county reports a recent increase in retail development, including new Wal-Mart, Home Depot, and Lowes home improvement stores, which should help unemployment to moderate. An industrial park is also under development.

Moderate assessed value (AV) growth results from solid residential increases and flat utility values, which are close to half of total AV. A revaluation increased AV by 11.7% in fiscal 2002. Nearly all of the increase was due to the 22.8% growth in non-manufacturing property (excluding utilities) which makes up 54% of the total. About 7% of property is exempted from property taxes in fiscal 2002, pursuant to a provision in the state constitution that exempts investments by manufacturers in new facilities or additions from paying county taxes for five years. Property taxes made up a high 68% of fiscal 2001 general and debt service fund revenues. Current and total property tax collection rates are below average, but adequate given that the county budgets 95% of the levy. The county levies and collects taxes on behalf of the Oconee County School District, and approves the district's budget, although the district is operated as an independent entity. The constitutional amendment reducing ad valorem taxes on vehicles and other titled personal property will take affect gradually and is not expected to have a significant impact on the county's revenues.

Financial operations are consistently positive, and the fiscal 2001 year-end unreserved fund balance was 42% of expenditures and transfers out. Officials expect fiscal 2002 to end with break-even or slightly positive results. The fiscal 2003 budget will likely require a small operating millage increase. Officials are in the process of developing formal fund balance and other financial policies.

Total county debt, including overlapping school district debt, is a low $1,268 per capita and 1.4% of market value. With the series 2002 issue, amortization will be very rapid, with 42% of debt retired in five years and 75% in ten. The county does not yet have a long-term capital improvement plan, but expects to have one completed by the end of fiscal 2003. Capital needs are generally funded on a pay-as-you-go basis. This issue will fund the first phase of a public safety facility. The remaining phases are expected to be debt financed in fiscal 2004-05. Phase I will require a one-half mill tax increase.