Correction: Fitch Rates Norfolk, Virginia's GO Bonds 'AA'.

WASHINGTON -- (This is an amended version of a press release issued yesterday, containing revised information in the headline on the type of GO bonds being issued.)

Fitch Ratings assigns an 'AA' rating to the City of Norfolk, VA's approximately $59.3 million general obligation capital improvement bonds, series 2005, scheduled for bids on March 2. Fitch also affirms the 'AA' rating on approximately $450 million of outstanding general obligation (GO) bonds. The Rating Outlook is Stable.

The 'AA' rating is based on Norfolk's financial stability, aided by strong fiscal planning and monitoring, and a moderate debt load with rapid amortization. Concerns include below-average wealth levels and an economy still centered on defense, although significant improvements have been made to diversify. The city continues to focus its economic development efforts on downtown and neighborhood revitalization, which have produced steady increases in locally generated taxes including, real property, sales and meals taxes. The Stable Rating Outlook reflects Fitch's expectation that the city can effectively manage through near-term budgetary pressures, including escalating pension contributions and health care costs.

While the population declined significantly during the 1990s, it now appears to be stabilizing. The estimated 2004 population of 241,727 is a 3.1% increase over the 2000 census. Pier investments that have expanded the cruise business, coupled with the MacArthur Center mall and other commercial developments, have increased pedestrian traffic and sales activity downtown, mitigating the impact of recent military deployments. The city's most recent unemployment rate of 6% continues to be higher than that of the state and nation, due in part to military turnover.

Financial operations are sound and benefit from well conceived fiscal policies. The estimated unreserved general fund balance at the close of fiscal 2004 was about $55 million, or 11% of spending. Included in the unreserved fund balance is a fully funded rainy day reserve equal to 5% of the combined general operating and school budgets. For fiscal 2005, the city budgeted the use of $9 million of the general fund balance, down from $12.5 million the prior year. Historically, the majority of the budgeted fund balance was for one-time expenditures, but for the last two fiscal years, the majority of this total represents recurring spending, which will have to be addressed in future budgets. City officials estimate the return to using fund balance for one-time expenditures by fiscal 2007. Fitch will closely monitor the city's progress in this area.

Debt levels are moderate with net direct debt equal to about 4% of full market value. The five-year, $502 million capital improvement plan (CIP) is primarily focused on utility and non-school related general governmental improvements. The scope and amount of the CIP could change in the future as school needs are identified, which may include a replacement elementary school. The CIP is planned to be funded by revenue bonds (48%), GO bonds (47%), and internal resources comprising the remaining portion. Amortization of outstanding debt is rapid.