Fitch Rates Bernalillo County, New Mexico GO Bonds 'AA+'.

AUSTIN, Texas -- Fitch Ratings assigns a rating of 'AA+' to Bernalillo County (the county), New Mexico's $10 million general obligation bonds, series 2006, which are scheduled to sell via internet auction on Nov. 9. Fitch also affirms the 'AA+' rating on the county's outstanding $82.2 million general obligation bonds and 'AA' rating on $183 million outstanding gross receipts tax (GRT) bonds. The Rating Outlook is Stable.

The bonds are payable from ad valorem taxes, which may be levied against all taxable property within the county without limitation as to rate or amount. Proceeds will be used for various public purposes and to pay issuance costs.

Fitch's rating of 'AA+' reflects the county's sound financial management and large financial reserves, diversified and growing tax base, modest debt levels, and above average pay out rate. The county's role as New Mexico's principal population center has resulted in steady GRT revenue growth even during recent recessionary periods. The county's new role as sole operator of the Metropolitan Detention Center (MDC) substantially increased its public safety expenditures. Imposition of a new dedicated GRT and a short-term financial agreement with the City of Albuquerque (general obligation bonds rated 'AA' by Fitch) should allow the county to preserve its strong financial position. The recent enactment of this and other GRTs makes the county more dependent on economically-sensitive GRTs; however, the maintenance of sizeable reserves and available property taxing margin offsets this risk.

As the state's largest county, the county's population grew 17% in the 2000 census and totaled over 603,500 residents in 2006, fueling strong property tax base growth that has increased by a compound annual average of nearly 6% since fiscal 2001. Located within the county, the City of Albuquerque comprises about 80% of the county's population. The remaining population in the unincorporated areas of the county represents the second largest population in the state.

As a sign that economic recovery continues within the metropolitan statistical area, employment growth for the 12-month period ending August 2006 totaled 13,000 jobs or 3.4%, aided by the city's strong housing construction market. Despite continued high growth in its workforce, the county's unemployment rate decreased to 4% in August 2006, below the state and national average. Kirtland Air Force Base, Sandia National Labs, and Intel are among the area's largest employers, helping transform the area economy into a hub for electronics, aviation and aerospace, and defense-related research and development. Kirtland Air Force Base is scheduled to receive a small net increase of personnel as a result of the Department of Defense's base realignment and closure actions.

The county maintains a formal capital improvement plan, whose local portion has been historically financed with $16 million in voter-approved general obligation bond authorizations every two years. Accordingly, the county voters will face an $18 million bond program on Nov. 7, 2006. Including GO bonds and GRT obligations, current direct debt levels are modest at $471 per capita and less than 1% of full market value. Overall debt levels are low to moderate at slightly more than $1,100 per capita and 1.8% of full market value. The GO bonds' pay-out rate is rapid at 63% in 10 years.

The county's general fund has historically maintained large reserves with total fund balances of at least 32%-50% of expenditures and transfers out since fiscal 1999. In addition to the state's mandated three month reserve for subsequent year's expenditures, the county has typically generated unencumbered reserves and further cushions its position with a $4 million-$5 million stabilization reserve. Substantial liquidity has also been maintained in the general fund with cash totaling over four months of operating expenses. Preliminary unaudited fiscal 2006 results point to a large $25.6 million operating surplus aided by a full year's collection of an additional 3/16% GRT imposed in mid-fiscal 2005.

Effective July 1, 2006, the county became the sole operator of the MDC. Operational costs, totaling $48 million in fiscal 2006, were previously shared evenly between the city and the county. To offset the county's $24 million of increased costs, the fiscal 2007 budget includes $21 million in additional revenue comprised of a 1/8% correctional facilities GRT, estimated to generate $19 million per year, and a $12 million contribution from the city in fiscal 2007 and 2008. Other cost controls have enabled the county to reduce the annual growth of the MDC's operating costs below it historical 10% rate.

Due to the addition of GRTs imposed this fiscal period and fiscal 2005, GRT revenues as a percentage of general fund revenues have increased notably from 28% in fiscal 2004 to almost 42% in fiscal 2006. Scheduled for collection in separate special revenue funds, two more 1/16% GRTs for health care will become effective Jan. 1, 2007. The resulting GRT of 5.8125% will still be lower than all New Mexico counties, the City of Albuquerque (6.75%), and all major cities in the southwest United States.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.