Fitch Rates Cabarrus County, North Carolina $50MM 2005 GO School Bonds 'AA'; Stable Outlook

Business Wire, Feb 16, 2005

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $50 million County of Cabarrus, NC, general obligation (GO) school bonds, series 2005. The bonds are scheduled to sell via competitive bid on Feb. 22. The bonds mature serially March 1, 2006-2025 with semiannual interest payments on March 1 and Sept. 1, commencing Sept. 1, 2005. Bond proceeds will provide funds for constructing and improving school facilities in the county. Concurrently, Fitch affirms the 'AA' rating on the county's $52.5 million outstanding GO bonds, and the 'AA-' rating on the county's approximately $98 million outstanding certificates of participation, series 2001, series 2002 and series 2003. The Outlook for all ratings is Stable.

The 'AA' rating on Cabarrus County's GO bonds reflect its solid financial management, low property tax rate, moderate debt levels with above-average amortization, and a diversifying economic base. The local economy has suffered the ill effects of the recent economic slowdown, as businesses reduced workforces and the county's top employer closed its operations, but the county continues to maintain ample financial flexibility supported by strong fiscal management policies and long-range planning. General fund balances declined as expected in fiscal 2004, though to a lesser extent than projected, and officials believe the planned use of fund balances contemplated by the adopted budget for fiscal 2005 may not materialize. Fitch's concerns over structural budget imbalance are reduced, as county officials have recently demonstrated a willingness to address this issue through tax increases.

Maintenance of the current rating level and Outlook will hinge upon the county's return to structural balance beginning in fiscal 2005 and the development of a comprehensive plan to address the county's significant growth-related school capital needs, which could further increase the already above-average debt service budget burden. Equally important is the county's future ability to absorb the loss of its largest employer and to maintain the moderate unemployment level it recently regained after a spike in mid-2003.

Cabarrus County is located 18 miles northeast of Charlotte in the growing Piedmont section of the state. Its population has increased a strong but manageable 44.3% since the 1990 census, to an estimated 2003 population of 142,740. Rapid school enrollment growth is projected to continue over the next several years. The gradual diversification of the county's employment base away from its traditional textile manufacturing base helped cushion the impact of the closing of its largest employer, Pillowtex, in July 2003. The unemployment rate soared from 6.5% in June 2003 to 10.3% a month later, but has since moderated to the 4.7% range. Given the county's proximity to major interstate highways, the warehousing and distribution sectors continue to broaden the local economic and employment base. The entertainment, recreation and tourism sectors remain significant, with the presence of the Lowe's Motor Speedway that hosts numerous annual major racing events, as well as the 1.4 million-square-foot Concord Mills Mall that attracts visitors from the entire state.

The county holds a track record of maintaining substantial reserves well above the state guidelines and of its own target of keeping undesignated general fund balances at 15% of expenditures and transfers out. Following a $15.7 million drawdown in fiscal 2002 and a slight surplus in fiscal 2003, the audited financial statements for fiscal 2004 show a general fund balance drawdown of $5.5 million, an amount lower than originally budgeted, and an undesignated general fund balance of 20.2% of expenditures and transfers out, in keeping with the county's policy. Although the adopted budget for fiscal 2005 envisions an additional drawdown of $2.7 million and other reserves to achieve a balanced budget, officials believe the use of reserves may not materialize by year-end. Future revenue growth prospects remain positive, bolstered by a 23% jump in assessed valuation in fiscal 2005 and a tax rate above the revenue neutral rate. The county's five-year financial plan incorporates prudent assumptions, including realistic sales tax growth and continual vigilance on cost controls. The county is committed to restoring structural balance and fiscal equilibrium beginning in fiscal 2005.

At $1,597 per capita and 1.63% of taxable market value, the county's direct debt levels are moderate. Incorporating the recently approved $98 million GO bond referendum, the debt service burden on the budget for both school and general capital needs is above average and will remain so, as additional school capital needs are assessed and addressed over the next few years. The debt service burden on the budget, although higher than normal for this rating category, is mitigated somewhat by the above-average debt retirement of 61% in ten years.