U.S.

PUBLIC FINANCE

CREDIT OPINION
6 February 2020
Lancaster (County of) PA
Update to credit analysis following upgrade to Aa2
Summary
Lancaster County, PA (GOULT Aa2) benefits from a large tax base which is experiencing
growth, a trend that is expected to continue given a number of new developments, both
commercial and residential, that are currently underway. Of further benefit to the county's
Contacts
economy is its close proximity to Philadelphia (A2 stable), an economic hub for this region,
Matt Jaffe +1.212.553.4771 and some tourism to the county based on various “Pennsylvania Dutch” settlements. The
Analyst
[email protected] county's financial position has steadily improved in recent years; a trend that is expected
to continue given management's history of conservative budgeting. While the debt burden
Nicole Serrano +1.212.553.4143
VP-Senior Analyst is average, the county support a large amount of guaranteed debt. Pension liabilities are
[email protected] manageable.

CLIENT SERVICES On February 6, 2020, Moody's assigned a Aa2 rating to the County's General Obligation
Bonds, Series A and B of 2020 and upgraded the rating on outstanding debt to Aa2 from
Americas 1-212-553-1653
Aa3.
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100 Credit strengths
EMEA 44-20-7772-5454 » Large tax base which is experiencing growth, a trend expected to continue

» Improving financial position due to balanced operations and a history of operating

surpluses

Credit challenges
» The county lacks formal fund balance policies

Rating outlook
Moody's generally does not assign outlooks to local government issuers with this amount of
debt outstanding.

Factors that could lead to an upgrade

» Material growth and diversification of the tax base and improved resident wealth and
income levels

» Continued, material growth in reserve levels and liquidity

Factors that could lead to a downgrade

» Failure to maintain structural balance resulting in material draws on reserves

» Contraction of the tax base and deterioration of resident wealth and income levels
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

Key indicators
Exhibit 1
Lancaster (County of) PA 2014 2015 2016 2017 2018
Economy/Tax Base
Total Full Value ($000) $40,374,550 $41,599,352 $43,031,700 $44,137,561 $42,491,410
Population 526,839 530,216 533,110 536,494 543,557
Full Value Per Capita $76,635 $78,457 $80,718 $82,270 $78,173
Median Family Income (% of US Median) 104.7% 104.4% 103.9% 102.8% 102.8%
Finances
Operating Revenue ($000) $146,316 $150,028 $155,248 $157,608 $159,473
Fund Balance ($000) $6,499 $10,703 $20,033 $24,398 $28,630
Cash Balance ($000) $19,270 $2,540 $22,609 $30,415 $38,326
Fund Balance as a % of Revenues 4.4% 7.1% 12.9% 15.5% 18.0%
Cash Balance as a % of Revenues 13.2% 1.7% 14.6% 19.3% 24.0%
Debt/Pensions
Net Direct Debt ($000) $336,855 $319,507 $299,428 $287,225 $267,317
3-Year Average of Moody's ANPL ($000) $228,623 $206,458 $206,974 $132,409 $152,561
Net Direct Debt / Full Value (%) 0.8% 0.8% 0.7% 0.7% 0.6%
Net Direct Debt / Operating Revenues (x) 2.3x 2.1x 1.9x 1.8x 1.7x
Moody's - adjusted Net Pension Liability (3-yr average) to Full Value (%) 0.6% 0.5% 0.5% 0.3% 0.4%
Moody's - adjusted Net Pension Liability (3-yr average) to Revenues (x) 1.6x 1.4x 1.3x 0.8x 1.0x

Sources: US Census Bureau, Moody's Investors Service and Lancaster County audited financial statements

Profile
Lancaster County covers close to 950 square miles and is located in Southeastern Pennsylvania (Aa3 stable), approximately 60 miles
west of Philadelphia and 80 miles north of Baltimore, MD (Aa2 stable). There are 60 municipalities in the county, including the City of
Lancaster (A3), 18 boroughs and 41 townships.

Detailed credit considerations

Economy and tax base: large and growing tax base with average resident wealth and incomes
Lancaster County's $42.5 billion tax base will remain strong in the near- to medium-term given robust employment levels and a
large number of new developments underway. The county's tax base, which is largely residential (69.6% of assessed value), has
demonstrated fairly consistent growth since 2007. Over the last five years, full valuation has grown at a respectable compound annual
rate of 1.6% while assessed value has grown at a compound annual rate of 5.7% over the same period. Management has noted
that there are a number of high profile new developments currently underway and as such, we expect continued growth in the tax
base. Taxpayer concentration is minimal with the top ten taxpayers accounting for just 2.6% of assessed valuation, all of whom,
management reports, are stable or expanding.

The county's population of 536,494 has experienced steady modest growth in recent years. Resident wealth and income levels are
average with median family income at 100.2% and 102.8% of state and national medians, respectively. The poverty rate of 10.4% is
below the national rate of 14.6%. Notably, unemployment in the county is very low at 3.3% as of November 2019, on par with the
national rate at the same period, and considerably outperforming unemployment for the commonwealth overall at 4.3%.

Although agriculture makes up a just 5.0% of the assessed value, it is a notable focus of county government. The county maintains its
dedication to agriculture, which is further encouraged by the sustained presence of the “Pennsylvania Dutch” in this area. Community
farming as well as an active tourism industry have flourished around the Amish settlements in Lancaster.

Financial operations and reserves: improving reserve levels and liquidity

The county's financial position has been steadily improving in recent years, a trend that is expected to continue given management's
conservative budgeting practices and focus on adding to the county's reserves. The county closed fiscal 2018 with an operating reserve

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

2 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

of $28.6 million, or 18% of revenue, a substantial improvement over the last five fiscal years, and the county's fund balance low of $2.9
million or 1.8% of revenues in fiscal 2013. Results for fiscal 2018 illustrated a sizeable positive operating variance of $5.5 million, which
management notes is largely the result of conservative budgeting practices.

For fiscal 2019, the county's adopted budget was balanced without the use of reserves or a property tax increase. While audited
financial statements are not yet available, management expects an operating surplus of at least $3.0 million which would bring
available fund balance to $31.6 million or 19.5% of revenues. For fiscal 2019, the county's adopted budget was once again balanced and
given management's conservative budgeting practices, continued growth in reserve levels is expected.
LIQUIDITY
The county's cash position is expected to continue improving given management's focus on strengthening its liquid resources. In fiscal
2018 net cash grew by $7.9 million to $38.3 million or a healthy 24.0% of revenues.

Debt and pensions: average debt burden with significant amount of guarantees; average pension liabilities
Following issuance of the GO Bonds, Series A & B of 2020, the county will have net debt of $280.4 million, or a manageable 0.7% of
full valuation. The county's debt amortizes rapidly with 76.0% of principal retired within ten years and in fiscal 2018, debt service was
$24.9 million, representing 15.6% of operating revenues. Given the lack of plans to issue new debt in the near- to medium-term, we
expect the county's debt burden to moderate.
DEBT STRUCTURE
The county's debt profile includes $199.0 million in general obligation debt, $14.2 million of capital lease debt, which financed a 911
communications system for the county, and a total of $67.2 million in guaranteed debt which is associated with both the Convention
Center Authority and the Redevelopment Authority.

Debt guaranteed for the Convention Center Authority includes the Hotel Room Rental Tax Revenue Bonds, Series of 2003 and Series
of 2007, issued in the amounts of $40.0 million and $23.9 million, respectively. In 2014, both series were refunded by the Hotel Room
Rental Tax Revenue Bonds, Series of 2014 issued in the amount of $62.6 million with $60.3 million currently outstanding.

Debt guaranteed on behalf of the Redevelopment Authority is associated with its Federally Taxable Guaranteed Multi-Purpose Stadium
Facility Revenue Bonds, Series of 2013, with $6.9 million outstanding. These bonds refunded the Series of 2004, which were originally
issued to support the site acquisition, design and construction of the 6,000 seat Clipper Magazine Stadium in the city of Lancaster.
While the county has not had to make debt service payments on its guaranteed debt, it has provided a loan of $2.7 million to the
Lancaster Baseball Club, LLC, which leases the stadium from the Redevelopment Authority, in order to assist in covering debt service
payments. Should the county be required to step in and make debt service payments on these or other guaranteed bonds, its fixed
costs could become elevated, putting negative pressure on the rating.

Additionally, approximately 28.8% of the county's $280.4 million net debt is variable rate. This includes the county's GO Note, Series
A of 2002 and the guaranteed debt associated with the Convention Center Authority.
DEBT-RELATED DERIVATIVES
The county maintains one active floating-to-fixed rate swap. The county entered into the swap with JPMorgan Chase Bank, N.A. (Aa1
- LT Counterparty Risk Rating) in 2001 for an original notional amount of $24.9 million related to the county's Series A of 2002 Notes.
The swap amortization schedule mirrors that of the bonds and the swap terminates at the bond maturity date of October 25, 2030.
The county's current mark-to-market position for its floating-to-fixed rate swap is -$5.4 million. Additionally, the guaranteed debt
associated with the Convention Center Authority is hedged through a fixed-payor swap entered into with Wells Fargo Bank, N.A. (Aa1 -
LT Counterparty Risk Rating).
PENSIONS AND OPEB
Lancaster County provides pension benefits to employees through a single-employer defined-benefit plan. The county's adjusted net
pension liability (ANPL), based on a 4.22% discount rate, was $168.1 million in fiscal 2018 representing an average 1.05x operating
revenues. In comparison, the county reported a GASB net pension liability of $33.7 million based on a 7.25% discount rate. In fiscal
2018, the district’s pension contributions of $4.4 million represented 2.8% of operating revenues. The district’s contributions were

3 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

above Moody's “tread water” indicator, the amount required to prevent reported net pension liabilities from growing given an entity's
actuarial assumptions.

The district funds other post-employment benefits (OPEB) on a pay-as-you-go basis. In fiscal 2018, OPEB payments were $2.3 million,
representing for 1.4% of operating revenues.

Total fixed costs, including debt service, pension contributions and OPEB, totaled approximately $31.6 million or a slightly elevated
19.8% of operating revenues.

Management and governance

The county's management has demonstrated a commitment to improving its financial position and through conservative budgeting
practices and management of expenditures, and has consistently run operating surpluses that have significantly increased reserve
levels. While the county does not have formal fund balance policies in place, we anticipate continued growth in reserves given
management's forward looking projections.

Pennsylvania counties have an institutional framework score of “Aa,” or strong. Revenues are moderately predictable due to a
reliance on stable property tax revenues. Revenue raising flexibility is high as counties rarely approach their property tax millage
limit. Expenditures mostly consist of social services, which are highly predictable and largely offset with state reimbursements and
grants. Counties also have a moderate ability to adjust expenditures as the majority of essential services are provided by other local
governments.

4 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

Rating methodology and scorecard factors

The US Local Government General Obligation Debt methodology includes a scorecard, a tool providing a composite score of a local
government’s credit profile based on the weighted factors we consider most important, universal and measurable, as well as possible
notching factors dependent on individual credit strengths and weaknesses. Its purpose is not to determine the final rating, but rather to
provide a standard platform from which to analyze and compare local government credits.

Exhibit 2
Lancaster (County of) PA

Rating Factors Measure Score

Economy/Tax Base (30%) [1]

Tax Base Size: Full Value (in 000s) $42,491,410 Aaa
Full Value Per Capita $78,173 Aa
Median Family Income (% of US Median) 102.8% Aa
Finances (30%)
Fund Balance as a % of Revenues 18.0% Aa
5-Year Dollar Change in Fund Balance as % of Revenues 16.1% Aa
Cash Balance as a % of Revenues 24.0% Aa
5-Year Dollar Change in Cash Balance as % of Revenues 8.5% A
Management (20%)
Institutional Framework Aa Aa
Operating History: 5-Year Average of Operating Revenues / Operating Expenditures 1.0x A
Debt and Pensions (20%)
Net Direct Debt / Full Value (%) 0.7% Aaa
Net Direct Debt / Operating Revenues (x) 1.8x A
3-Year Average of Moody's Adjusted Net Pension Liability / Full Value (%) 0.4% Aaa
3-Year Average of Moody's Adjusted Net Pension Liability / Operating Revenues (x) 1.0x A
Scorecard-Indicated Outcome Aa2
Assigned Rating Aa2

[1] Economy measures are based on data from the most recent year available.
[2] Notching Factors are specifically defined in the US Local Government General Obligation Debt methodology.
[3] Standardized adjustments are outlined in the GO Methodology Scorecard Inputs publication.
Sources: US Census Bureau, Moody's Investors Service, Lancaster County audited financial statements and preliminary official statement

5 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

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6 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2
 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE

CLIENT SERVICES

Americas 1-212-553-1653
Asia Pacific 852-3551-3077
Japan 81-3-5408-4100
EMEA 44-20-7772-5454

7 6 February 2020 Lancaster (County of) PA: Update to credit analysis following upgrade to Aa2