January 25, 2013 / 9:37 PM / 5 years ago

TEXT-Fitch affirms on St. Joseph County, Ind. GOs at 'AA-'

Jan 25 - Fitch Ratings takes the following rating action on St. Joseph
County, Indiana's (the county) bonds:

--$6 million general obligation limited tax bonds, series 2005 and refunding
bonds 2009, affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

General obligation (GO) bonds are secured by the county's general obligation,
limited tax pledge. Tax levies for county debt issued prior to July 1, 2008 are
outside the 'circuit breaker' legislation calculation through December 31, 2019.

SENSITIVITY/RATING DRIVERS

SOUND FINANCES: The rating reflects the county's sound overall financial
operations, featuring active management to align revenues and expenditures in
the face of legislation affecting property tax revenues, strong reserves, and
conservative budgeting.

ECONOMY BENEFITS FROM UNIVERSITY PRESENCE: The county's employment and tax base
is diverse, with some concentration in education, health services, and
manufacturing. The local economy benefits from the presence of the University of
Notre Dame which is a strong source of stability as the county continues to face
ongoing economic challenges, including tax base erosion, improving but still
high unemployment, and below average income and wealth indicators.

MODERATE DEBT PROFILE: The county's debt profile is mixed. Rapid amortization,
prudent pension and other post-employment benefits (OPEB) funding and manageable
capital needs are balanced against moderate to high overall debt levels.

CREDIT PROFILE:

St. Joseph County is located in north central Indiana, near the Michigan border.
South Bend, the county seat, is the fourth largest city in Indiana and home to
Notre Dame University. Population levels have been steady, with the county's
2011 population at 266,700.

SOUND APPROACH TO REVENUE CHALLENGES

A key credit strength is the county's ability to yield solid reserve levels
despite revenue volatility associated with the state's 'circuit breaker'
legislation and state disbursements. The county responded prudently to
challenges presented by 2007 state-wide 'circuit-breaker' legislation and has
maintained sound financial operations despite decreases to property tax revenues
triggered by the law. The legislation limits property taxes to a percentage of
gross assessed value, depending upon the class of property.

The county's response included a mix of expenditure cuts, along with a permanent
increase in income taxes to help compensate for the revenue shortfall. The
expanded revenue base protected against more dramatic downside risk as revenues
still declined in the last three years due to property tax base weakness, higher
tax appeals, lower tax collection rates and a state overpayment of revenues that
the county repaid from its income tax collections. Fitch views the county's
expectation for a return to revenue growth in 2013 cautiously but recognizes
declining appeals, no further state repayments, and slow economic recovery.

AMPLE RESERVES MAINTAINED

General fund ending balance (cash basis) increased to roughly $12.3 million (17%
of spending) in 2011 from $5.5 million (8%) in 2009. The county prudently
maintains a rainy day fund balance outside the general fund totaling $6.3
million, an additional 9% of spending, in 2011.

The county moved self-insurance related costs, revenues, and balances out of the
general fund to account separately for related activity. As a result, the county
estimates for 2012 indicate a decline in the general fund ending balance to
about 5.5% of spending. The county reports that 2013 operations are ahead of
budget and expectations for further growth in ending balances appear reasonable
given the county's history of conservative budgeting.

CHALLENGED ECONOMY BENEFITS FROM UNIVERSITY PRESENCE

The county benefits from the presence of the University of Notre Dame, the
county's largest employer, with about 5,000 employees. A university led
consortium of high-tech companies has invested in a nano-technology business
incubator (Innovation Park at Notre Dame) within the county. In addition, the
university is involved in an off-campus development (Eddy Street Commons)
featuring hotels, retail establishments, condominiums and townhouses.

AM General Corporation, another major county employer that manufactures military
and special purpose vehicles, laid off about 500 workers this month, though the
lay-offs have been characterized as temporary. However, the university's
development activities together with a proposed new natural gas power plant to
be located in the county bode well for the county's longer term economic
prospects.

The county economy currently remains challenged with unemployment rates well
above the state and national averages, despite contractions in the labor force.
The county unemployment rate was 8.8% as of October 2012, down from 9.8% a year
prior, but still higher than state (7.4%) and national (7.5%) rates. County
income levels are lower than those of the state and nation, though closer to
state levels. The county's poverty rate (14.6%) is higher state (13.5%) and
national (13.8%) levels.

Taxable assessed value, about $8 billion in 2012, has shown a trend of annual
declines through 2011. Though 2012 was essentially flat, taxable assessed value
declined in 2013 by about 4% due to reassessment.

MIXED DEBT PROFILE

Overall debt levels are moderate with significant overlapping borrowing raising
the debt burden to $2,152 per capita and about 4% of full value. Payout of
direct debt is rapid, with 100% retired within 10 years. No future borrowing is
currently anticipated.

The county provides pension benefits through county and state-administered plans
which are well funded and pays 100% of its required contributions. In addition,
a county plan provides OPEB benefits. Overall debt service, pension, and OPEB
costs are also manageable at about 17% of 2011 expenditures.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight, and National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria

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