Fitch Rts Wake County, NC's $222.9MM GO Bonds 'AAA'

Business Wire, March 7, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--March 7, 2003

Fitch Ratings assigns a 'AAA' rating to Wake County, NC's $122,890,000 general obligation public improvement bonds, series 2003A; $55,000,000 variable-rate public improvement bonds, series 2003B; and $45,000,000 variable-rate public improvement bonds, series 2003C. The fixed-rate series 2003A bonds are scheduled to sell competitively on March 18 and mature April 1, 2004-2015. The variable-rate general obligation bonds, series 2003B and 2003C will be sold through negotiations with RBC Dain Rauscher Inc. and Legg Mason Wood Walker Inc. on or about April 8 and will be assigned a short-term rating by Fitch closer to closing, based on the support of a liquidity provider. Fitch affirms the 'AAA' rating on the county's approximately $782 million outstanding general obligation debt.

The 'AAA' rating reflects Wake County's excellent financial performance and management and a strong, diverse economic base. The county benefits from the presence of the city of Raleigh, the state capital, and its proximity to Research Triangle Park (RTP), as well as a broad range of business activity within the county. While the county has felt the effects of the recent economic slowdown, strong financial performance and management should continue to offset any risk. Wealth levels are above average, financial and debt policies are sound, and reserves are sizable. School enrollment has increased at the high average annual rate of 3.2% over the last five years, and debt levels are projected to continue to rise as school needs are funded.

Wake County's population increased 48% in the 1990's, to a 2000 census population of 627,846. The county has a diverse pool of employers, including state and local government, technology, health care, and other services. Despite recent businesses downsizing and lay-offs in the past two years, the county's employment rate of 4.7% in December of 2002 remains lower than both the state (6.1%) and national (6.0%) averages.

County financial management is very strong, and adheres to policies and goals that provide a framework for accommodating its growing needs. In fiscal 2002, the general fund balance declined a modest $4 million due to a planned additional payment to the school system and decreases in economically sensitive revenues. Unreserved fund balances represented a sound 15% of expenditures and transfers out at fiscal year-end; adding in the reserve required by state statute, the balance rises to 22%. The county is planning on augmenting its strong planning by conducting four-year multiyear forecasting on the operating side.

For fiscal 2003, the county budgeted a portion of capital fund balances to off-set $14 million dollars in withheld state funds. The county plans to reimburse these funds with money generated from the new 1/2 cent sales tax over the next two fiscal years. The new sales tax took effect December 2002 and is expected to generate $10 million in fiscal 2003 and $17 million in fiscal 2004. The county is planning on drawing down general fund balances by $7 million in fiscal 2003, which will still leave the general fund balance strong. Overall, revenues for fiscal 2003 are reportedly in line with the budget.

Through 2009 the county is contemplating issuing an additional $700 million in debt. Debt levels will rise but should remain moderate due to the county's debt policies and above-average amortization. In fiscal 2002 the county dedicated a portion of ad valorem and sales tax revenues to a newly created debt service fund for the purpose of accumulating funds for years with higher debt service payments. The majority of new money for this issuance is part of the $500 million referendum approved in November 2000. Bond proceeds will fund school projects ($175 million), community college projects ($11 million), and open space conservation projects ($10 million). Roughly $26 million will be used to refund outstanding general obligation bonds, series 1993. The next referendum is scheduled for November 2003.