Fitch Rates Warren County, Virginia's $20.6MM GOs 'A+'

Business Wire, August 20, 2004

NEW YORK -- Fitch Ratings assigns an 'A+' rating to Warren County (the county), VA's $20.6 million outstanding general obligation (GO) bonds. The Rating Outlook is Stable. The rating is Fitch's first for debt obligations of Warren County (the county).

The 'A+' rating reflects the county's sound financial position and increasing residential and commercial development opportunities due to its proximity to the Washington DC metro area and good transportation links. Additional credit considerations include the area's limited employment base, below average wealth indices, and significant capital school construction needs that will increase debt levels substantially.

Located in northern Virginia and bordered by Frederick and Clarke Counties to the north and Fauquier County to the east, Warren County is in the far western part of the Washington DC metropolitan statistical area. The local economy is stable but somewhat limited, and a majority of residents commute to jobs in neighboring counties, including the national capital region. The county is traversed by Interstates 66 and 81 and is the location of the Virginia Inland Port, making it an attractive location for commercial distribution centers. In addition, the county's location in the Shenandoah Valley has made it a tourist destination as well as an attractive location for retirees and vacation homes, which has contributed to an increase in the retail and trade sectors within the county over the past several decades. The residential unemployment rate has historically been below commonwealth and national averages and registered a low 3.1% for June 2004. Income levels are below average; in 2002 per capita personal income levels averaged 81% and 86% of the state and nation respectively.

Tax base growth has averaged 3.9% annually over the past five fiscal years, including a 9.8% increase in fiscal 2004 due to a property revaluation. Both residential and commercial development contributed to the gains. Planned commercial development includes a newly constructed SYSCO re-distribution center, which is scheduled to open in January 2005, as well as the development of a Wal-Mart Supercenter and Lowes Home Center, which will benefit the sales tax base. Residential demand is increasing as northern Virginia builders seek to acquire land for future development within regional commuting corridors.

Warren County exhibits strong financial operations, characterized by ample reserves and liquidity. Unreserved general fund balance of $13.1 million in fiscal 2003 represented 37.2% of spending and transfers out. Preliminary operating results for fiscal 2004 show a fourth consecutive year of surplus, estimated to be as high as $2.5 million. A tax rate increase for fiscal 2005 of $0.03 per $100 of assessed valuation should lead to additional surpluses, although the funds are earmarked for debt service on an upcoming school financing. The tax rate is regionally competitive. County revenues are fairly stable with property taxes and aid from the commonwealth making up 82% of the budget. State cutbacks during the recession did not have a significant impact on county finances.

Debt levels are currently low at 1% of market value. However, the county plans to issue approximately $70 million of lease revenue bonds to construct a new high school and convert an existing middle school to a high school during fiscal 2005, which will increase the county's outstanding debt more than 400%. The FY 2005-2009 capital plan totals $142 million, with 75% dedicated to school construction projects, 15% to economic development purposes and the balance to small general government projects. The plan will be 81% debt funded including this issuance and an additional $38 million of school capital related debt to be issued around fiscal 2008. Most of the remainder of the plan will be funded by intergovernmental sources. By arrangement with Front Royal, water and sewer infrastructure to support industrial growth is largely in place. However, future residential development may require capital intensive utility extensions to other parts of the county; this need appears to be several years away.