Fitch Rates Brazoria County, Texas Unlimited Tax Road Bonds 'AA-'.

AUSTIN, Texas -- Fitch Ratings assigns an 'AA-' rating to the $14 million unlimited tax road bonds, series 2006 of Brazoria County, Texas. In addition, Fitch affirms the 'AA-' rating on the county's $15 million of general obligation (GO) bonds and $23.3 million in certificates of obligation outstanding. The Rating Outlook is Stable.

Scheduled to sell on or about Oct. 24 via negotiation to a syndicate co-managed by Coastal Securities and First Southwest Company, the bonds constitute a GO and are payable from an annual ad valorem tax levied upon all taxable property within the county. Bond proceeds will be used for constructing, designing, improving, extending, expanding, upgrading and/or developing roads throughout the county.

The 'AA-' rating reflects the low direct debt burden, solid tax base growth, and strong financial condition of the county's general fund. Also considered in the rating is the sector concentration in the top 10 taxpayers, as well as the reliance on a single entity as the predominant taxpayer, representing nearly 20% of TAV in the county. Offsetting the concentration concerns to an extent is the expansion of the tax base in recent years and the reduced dependence on the chemical manufacturing sector. An above average amortization rate, provides the county flexibility to debt finance future capital needs.

Brazoria County is located immediately south of Houston and is bordered by the Gulf of Mexico and Fort Bend, Galveston, and Matagorda Counties. The county is home to an estimated 278,000 residents. The largest cities within the county are Pearland, with a population of more than 52,000 and Lake Jackson, with more than 27,000 citizens. The county economy consists primarily of chemical manufacturing, petroleum processing, manufacturing, fishing and tourism. In addition, the Brazos River Harbor Navigation District and the Port of Freeport, currently ranked 12th busiest port in the nation based on tonnage, are located within the county.

Tax base growth has accelerated in recent years. While averaging 5.7% annually between fiscal years 2000 through 2005, TAV increased by more than 11% in fiscal 2006 and 7.3% in fiscal 2007. Building permit values more than tripled in fiscal 2005 and the county reports that at least 60% of TAV growth is attributable to new construction of single family homes reflecting a significant shift in tax base concentration. Industrial and commercial property has given way to single family housing. Nearly half of the TAV is made up of single family residential units in fiscal 2006 while industrial and commercial makes up nearly 40% of TAV. This is compared to one third of single family residential and more than half in industrial and commercial in fiscal 2003. Real property comprises over three-quarters of the tax base, with personal property and minerals making up the remainder. Property tax is the overwhelmingly predominant revenue source for the county's general fund.

The county's general fund financial reserves benefit from the moderate economic expansion and willingness of the leadership to raise the tax rate when necessary. The county has maintained solid unreserved general fund balances between 16.5% and 26.4% of expenditures in each of the last five fiscal years. For fiscal years 2001 through 2004, expenditure levels exceeded revenues resulting in modest net operating deficits; however fund balance reserves have been sizeable enough to support these modest deficits without causing any concern. For fiscal 2005, the county recorded a $2.2 million operating surplus ending the year with an unreserved fund balance equal to 19.7% of expenditures. Despite the fact that the county decreased the property tax rate by approximately $0.02 per $100 of TAV in fiscal 2006, the county exceeded budget expectations and unaudited results reflect a moderate surplus. The fiscal 2007 adopted budget is balanced.

This sale is the first installment of a $50 million voter referendum for GO road bonds that was passed by the voters in November 2004. The direct debt burden on county residents is minimal at $189 per capita and less than one percent as a ratio of TAV. Amortization of property tax supported debt is above average with about 67% of principal retired in 10 years. The county's low direct debt burden, above-average amortization, and increasing tax base growth give the county flexibility to debt finance future capital projects. However, the overall debt burden, representing indebtedness of the cities, counties, and special districts located within the county, is high at $3,741 or 6.1% of expenditures and transfers out, after adjusting for state support on area school districts.

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