Fitch Rates Prince George's County, Maryland Bonds 'AA+'; LTGOs Upgraded to 'AA+'

Business Wire, June 21, 2005

WASHINGTON -- Fitch Ratings assigns an 'AA ' rating to Prince George's County's approximately $120 million consolidated public improvement bonds, series 2005, scheduled for a competitive sale on June 28. In addition, Fitch upgrades approximately $820 million in outstanding limited tax general obligation (LTGO) bonds to 'AA ' from 'AA' and also the following:

-- $4.5 million certificates of participation (equipment acquisition program), series 2001, to 'AA' from 'AA-';

-- $40 million in Maryland Transportation Authority's lease revenue bonds (Metrorail Parking Projects) to 'AA-' from 'A '.

Fitch also affirms the 'AA ' rating on $79 million in outstanding unlimited tax GO bonds. The Rating Outlook is Stable.

The upgrade of the county's LTGOs to 'AA ' from 'AA' reflects Prince George's County's demonstrated ability to operate effectively under tax limitations in both good and bad economic circumstances, solid reserves, growing economy, and moderate debt levels. While the county's revenue-raising flexibility from its top two revenues sources is limited, both are at the maximum allowable level, its proven ability to maintain balanced operations, create additional revenue sources, and build reserves, provide comfort that the county can sustain stable financial operations going forward. Economic prospects are strong as several major commercial and residential developments are under way, likely providing additional tax revenue for several years due to Maryland's three-year phase-in of property assessments. The county's debt levels should remain affordable given its rapid amortization and projected tax base growth.

Prince George's County, located adjacent to Washington, D.C., has an economic base that is centered on vital governmental bureaus and higher education, including the Internal Revenue Service and the University of Maryland. Tax base growth has been strong at 6.5% on average annually since fiscal 2002. Construction of the $500 million National Harbor project along the Potomac River and development of other hotel and retail areas, mark a significant breakthrough for a county historically underserved by these sectors. Per capita personal income in the county remains on par with that of the U.S., and from 2000 to 2003, grew faster than the state and nation, which is a reversal of the county's historic trends. The county unemployment rate is slightly above the state average but below the national rate.

The county's financial operations are consistently well managed, with solid reserves attained through conservative revenue forecasting and an emphasis on long-term structural balance. Aggregate reserves, including the charter contingency of 5% of budget, a stability reserve equal to 2% of budget, and the undesignated general fund balance totaled $168.5 million, or 15% of expenditures and transfers out at the close of fiscal 2004. Robust surpluses in fiscal 2004 and projected for fiscal 2005 are largely the result of a strong real estate market, and the county will prudently use these windfalls for nonrecurring expenditures over the next three years, while fully funding its charter and policy reserves.

For fiscal 2006, the county will again operate at its property tax rate cap and at the maximum income tax rate; about 71% of general fund revenues are subject to rate limitations. The county and its dependent and still troubled school system will also benefit from a sizable increase in state funding under Maryland's Bridge to Excellence program, which provides new classroom funding with limited additional county support.

The proposed $1.3 billion, six-year county and school capital improvement program (CIP) through fiscal 2011 continues to be heavily weighted toward school construction and renovation and transportation. About $110 million per year in new borrowing is planned. Surcharges linked to residential development will offset a portion of the debt service cost.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.