Fitch Rates Carteret County, North Carolina's $18.3MM GOs 'AA'; Upgrades COPs to 'AA-'.

NEW YORK -- Fitch Ratings has assigned an 'AA' rating to Carteret County, North Carolina's (the county) estimated $18.3 million general obligation bonds (GOs), series 2007. The GOs are scheduled to price via competitive sale on March 27, 2007. Fitch also affirms the county's $47.6 million outstanding GO bonds at 'AA' and upgrades the county's outstanding $18.7 million certificates of participation to 'AA-' from 'A+.' The Rating Outlook is Stable.

The 'AA' rating on the GOs reflects the county's consistently strong tax base growth, high reserves, moderate debt levels with manageable capital needs, low tax rate, and rapid amortization. The rating also incorporates the significance of tourism in the county's economy, although light manufacturing and the marine research sector provide a degree of diversification.

Carteret County is located along the central portion of the North Carolina coast and contains the southern parts of the Outer Banks. The county is a popular vacation area, and non-residents own nearly two-thirds of the residential assessed value (AV). Although tourism remains a key economic component, the county is strengthening other industries, and is becoming a center for boatbuilding and marine research and technology. The county will benefit from the Department of Navy's plans to establish in 2008 and 2009 two new Super Hornet squadrons in neighboring Craven County, totaling 1,000 jobs, given that 20% of air station employees reportedly reside in Carteret county. An $85 million new terminal/warehouse complex at Radio Island in Morehead City along with $72 million in recent capital improvements to the city's deep water port will provide a strong distribution and transportation network with connections to I-95. The county's economic indicators remain strong, with four consecutive years of employment growth, a 2005 4.6% unemployment rate below the state's 5.2%, and per capita income 5% above North Carolina's.

Preliminary data for the Jan. 1, 2007 property revaluation (effective fiscal 2008) indicate an extraordinary 137% gain. The county projects that it will lower the fiscal 2008 tax rate to a level slightly above revenue neutral; it will utilize the additional levy to fund debt service and pay-as-you-go capital projects. This new rate will probably be the lowest of all North Carolina counties. Carteret demonstrates strong financial management, with a fiscal 2006 unreserved fund balance equaling 31% of expenditures and other uses, more than double the 14% of fiscal 2002. In fiscal 2007, Carteret expects to increase its fund balance by between $500,000 and $1 million.

Direct debt is modest at $1,441 per capita and a minimal 0.5% of market value, based upon the preliminary revaluation data. These indices should remain low, although the county plans to issue $9.7 million in authorized school debt in fiscal 2008 and subsequently might issue debt for its community college. Officials do not plan to build additional schools for the next decade and the current five-year capital improvement plan (CIP) totals only $6.4 million for capital projects other than those funded by the school debt. Debt provided 74% of funding for the $102 million in capital projects accomplished since fiscal 2000. The county projects that through fiscal 2010, debt service will equal 13% of expenditures, manageable although slightly above average. Amortization is above average at 61% in 10 years, a slight decline from the 68% immediately after the most recent April 2006 issue.

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