Fitch Upgrades Dare County, NC's GOs to 'AA-'

Business Wire, June 25, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--June 25, 2003

Fitch Ratings has assigned a 'AA-' rating to Dare County, North Carolina's approximately $10,170,000 General Obligation Refunding Bonds, Series 2003B. The bonds are scheduled to sell competitively on July 15, maturing May 1, 2004-2011. Fitch also upgrades its rating on the county's approximately $9.9 million of currently outstanding general obligation debt to 'AA-' from 'A+' and the approximately $69.4 million in outstanding certificates of participation to 'A+' from 'A.'

The 'AA-' rating on the general obligation refunding bonds reflects Dare County's solid credit fundamentals, moderate debt levels, and financial flexibility with strong reserves to compensate for the inherent volatility of an economy heavily concentrated in tourism and subject to severe weather. The county allocates some of its more economically sensitive revenue streams to capital projects, helping further insulate financial operations from potential reduction in those revenues. The upgrade of the county's outstanding general obligation debt and certificates of participation reflects the continued growth of economically sensitive revenue streams like the sales and occupancy taxes and the formalization of a five-year capital improvement plan (CIP). The oversight of the state Local Government Commission provides additional credit strength.

Dare County is located along the coast in northeastern North Carolina and includes most of the area known as the Outer Banks. The county has benefited from travelers' predilection to drive instead of fly to vacation destinations in the past two years. Retail sales have shown annual growth for over 17 years, even through years marked by hurricane hits and precautionary evacuations, and have grown 11.4% in the first nine months of fiscal 2003 over the same period in fiscal 2002. Hotel room sales and occupancy tax revenues have also shown significant growth. Tourist attractions include numerous beach communities, the Wright Brothers Memorial in Kitty Hawk, and the Bodie Island and Cape Hatteras lighthouses. The county is preparing for a First Flight Centennial Celebration in December 2003.

According to the 2002 US census bureau estimate, there are 32,106 year-round county residents, but summer visitors increase the population to as many as 250,000 daily residents. Much of the 41% population growth since 1990 is due to the in-migration of retirees. Non-residents, many of whom rent their homes to vacationers, pay 56% of property taxes. Due to the concentration in tourism, unemployment fluctuates greatly during the year. However, at 5.6%, the average unemployment rate in 2002 was lower than both the state's and the nation's. This statistic may be overstated because of the inclusion of seasonal residents in the year-round labor force. Income levels, which reflect only income of year-round residents, are close to state and slightly below U.S. averages.

The county maintains large reserves to compensate for the volatility in finances inherent in an area susceptible to major storms. The county's general fund balance for fiscal 2002 was $28 million, or a very strong 49% of expenditures. By policy, the county targets an undesignated fund balance of 27% of budgeted expenditures and a total balance of about 40%. Amounts above that level are allocated first to a disaster recovery fund and then to fund school capital projects. Realty transfer taxes, held in a special revenue fund and earmarked for capital projects, provide an additional cushion. For the first nine months of fiscal 2003 local sales tax revenue distributed by point of collection increased 7.4% and occupancy tax revenues grew 6.5% from same period in fiscal 2002.

Overall debt is low at 1.6% of market value, but will increase as the county funds its school capital needs. Debt per capita of $2,679 is somewhat overstated because it is based on the year-round population and would be considerably lower if calculated by the average population throughout the year. The county's newly developed fiscal 2004-2008 CIP funds $22.2 million in general government projects. A 10-year forecast of school funding needs equals $102.1 million; it includes school capital needs as well as operating expenses for two new high schools. The county's designation of the realty transfer tax, 6.5 mills of the property tax and a portion of the new 1/2 cent sales tax to capital projects allows for substantial pay-as-you-go funding. The county plans on issuing $43 million in certificates of participation in fiscal 2004 and $28.5 million in fiscal 2005 for a combination of school and county projects.