The credit rating agency Fitch’s Ratings has assigned AA and F1+ ratings to Orange County’s $334.5 million taxable pension obligation bonds.
AA is the rating agency’s second-highest ranking, which it defines as high quality debt with a very low risk of default in the long-term. F1+ is Fitch’s highest short-term debt rating.
The county’s largest debt category, pension obligation bonds, or POBs, are a way for municipalities and counties to pay pension obligations by borrowing against future tax revenue. POBs allow cities to wipe out current pension obligations by borrowing money and putting it high-yield investments.
The AA+ rating reflects Orange County’s robust economy, favorable debt position and long history of strong operating results. Fitch’s Stable Outlook indicates the rating agency’s expectation that Orange County will continue to outperform the general US economy.
Orange County is the third most populous county in California and the sixth most populous in the nation.
Orange County’s strong credit strength relies on a large, diverse and wealthy economic base. Close proximity to Los Angeles, San Diego and the Inland Empire of San Bernardino and Riverside counties which provides easy access to the entire southern California economy.
Property valuations in Orange County suffered less than elsewhere in the country after the real estate market collapse in 2008 and 2009.
Taxable assessed valued (TAV) declined by just 1.4% in 2010 and 0.4% in 2011 before returning to growth in 2012 and 2013. TAV growth has increased in 2014 and 2014, resulting in a cumulative growth of nearly 20% since 2011. Property values as reported by Zillow.com were up 5.3% year-over-year as of November 2015, which is a good indicator that TAV growth will continue in 2016.
Unemployment stayed low at 4.3% in October 2015, compared to 4.8%, 5.5% and 5.7% at the national, city and state levels. Unemployment levels remain at about 2% about pre-recession lows despite the county’s comparatively high employment rate.
Income and household wealth among Orange County residents is substantially higher than state and national averages, and per capita TAV is also very high at about $145,000. Population growth in Orange County is lower than comparable counties and is expected to remain below average, reflecting the county’s mature state of development.
Orange County’s financial position remains healthy and reserves have increased steadily since 2010. The county’s 2014 fund balance includes approximately $332 million set aside to pay for pension obligations in 2015. Overall debt levels are low at $2,973 per capita. Direct debt is low, as a result of the city’s reluctance to issue new debt since its 1994 bankruptcy. All outstanding general-fund debt is set to be repaid by 2019.
Nevertheless, the county’s pension system remains a substantial unfunded liability despite recent reform efforts. At the end of 2014, the county’s multi-employer pension plan faced an unfunded liability of $5 billion, of which $3.9 billion is owed by the county, with a funded ratio of 70%.
County managers expects that pension costs will stabilize over the coming years assuming investment returns meet current assumptions.
Orange County is a Southern California gem with a strong economy, sensible government and strong growth prospects. If you’d like to live in this slice of paradise, contact one of our agents to find the luxury home that’s made for you.
Take a look at the available properties below priced from $4 Million to $8 Million and contact our agents for more information.
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