Fitch Rates Frederick County, Maryland's $92MM GOs 'AA+'; Stable Outlook

Business Wire, May 10, 2007

NEW YORK -- Fitch assigns an 'AA ' rating to Frederick County, Maryland's (the county) $91,880,000 general obligation (GO) public facilities bonds of 2007, scheduled for bids on May 15. Davenport & Company is the financial advisor. Fitch also affirms the 'AA ' rating on the county's $400 million outstanding GO bonds. The Rating Outlook is Stable.

The 'AA ' rating reflects Frederick County's ability to maintain a strong financial position and moderate debt levels while effectively managing significant growth. The county is evolving from a somewhat rural area to an important employment center within the Baltimore-Washington region, although 85% of land area remains agricultural or preserved. The labor force has grown steadily since at least 1998, and unemployment rates have consistently been below state and national averages. The county retains significant financial flexibility through tax-raising capacity and strong reserves. Prudent debt affordability guidelines coupled with a capital improvement plan (CIP) funded significantly by internal resources should keep the debt burden manageable.

Frederick County is one of the fastest growing counties in Maryland, fueled by competitive home prices, ample developable land, and proximity to the region's key governmental, technological, and biomedical economic assets. The county has had major service job growth and increasing expansion in many employment sectors, most notably the biotechnology industry, due to the presence of Fort Detrick. Fort Detrick is the home of the National Cancer Institute and the U.S. Army Medical Research Institute of Infectious Diseases and the leading medical research laboratory for the nation's biological defense program. The county also expects to benefit from expansions associated with base realignment and closure. As a result of the growing economy, the county enjoys unemployment levels that are well below the state and national averages.

Financial management remains a key credit strength for the county, as officials are able to meet school and utility growth demands while maintaining affordable debt levels and strong reserves. The county's fiscal 2006 unreserved fund balance equaled 27.4% of spending and other uses, with full compliance of a self-imposed general fund rainy day reserve requirement of 5% of spending. The county retains significant tax-raising capacity with a with a regionally competitive property tax rate, and an income tax rate at 2.96%, which is below the 3.2% state cap. Additionally, in fiscal 2007 the county lowered the cap on annual property assessment increases for owner-occupied residential property to 5% from the previous state-required level of 10% and projects that it can absorb the $4.3 million of lost revenue.

Overall debt levels remain moderate at $2,196 per capita and 2.4% of market value. The county's fiscal years 2007-2012 CIP totals $725 million, with 47% allocated to education. The CIP will be 43% debt financed and 21% supported by the general fund. Amortization is above average with approximately 58% of debt retired in 10 years. Officials expect to increase annual spending on other post-employment benefits over the next five years when it will reach the annual required contribution. Fitch believes this plan is both prudent and manageable.

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