Fitch Rates Fairbanks North Star Borough, Alaska's $9.75MM GOs 'A+'; Outlook to Stable.

SAN FRANCISCO -- Fitch Ratings assigns an 'A+' rating to $9.75 million of Fairbanks North Star Borough, Alaska, general obligation (GO) school bonds, 2006 series I, and revises the Rating Outlook to Stable from Evolving. Fitch also affirms the 'A+' rating on $135.9 million outstanding GO bonds and revises the Outlook to Stable from Evolving. The bonds will sell competitively on Jan. 11, with Bartle Wells Associates acting as the borough's financial adviser.

The 'A+' rating reflects the borough's continued strong financial position, relative economic diversity, prudent management policies, and moderate debt levels. These factors are offset by the inherent vulnerability of the natural-resource-based element of the economy and the area's limitations resulting from its remote location and severe climate.

The Rating Outlook revision reflects the credit implications of the U.S. Department of Defense base realignment and closure list (BRAC) final recommendations and their subsequent approval by the U.S. Congress. The final recommendations spare Eielson Air Force Base from closure (as originally proposed), but call for the partial transfer-out of military personnel and equipment from Eielson as well as the transfer-in of additional military personnel and equipment to the borough's other military installation -- Fort Wainwright. These troop movements will be phased in over the next two to six years, with the borough expecting a net gain in military personnel. Fitch views these actions as instrumental to maintaining the stability of the borough's economy and its credit fundamentals, meriting the revision of the Rating Outlook to Stable.

The borough's location in central Alaska makes it a key service center for the state, as well as a central transportation hub; however, the area's economy remains tied to natural resources. With an estimated population of 85,000, Fairbanks North Star Borough is the center of trade, commerce, and government for the interior and northern Alaska. Nonetheless, the economy also is shaped by its natural resources base and related infrastructure. The main University of Alaska campus adds some stability to the area's economy, as have two sizable military bases to date. Unemployment rates are below those of the state, while income levels are above the national average, reflecting an above-average cost of living.

The borough maintains a strong financial position, bolstered by prudent management practices and increasing revenues. Taxes are the borough's primary revenue source, with both property and hotel taxes experiencing significant growth. The borough also receives substantial state funding for debt service reimbursement and school district expenses. Assessed value has been strong, rising by a 6.1% annual average over the 2000-2005 period. However, with two military housing complexes being among the top 10 taxpayers in the area and accounting for 1.1% of the borough's taxable value, the tax base may be vulnerable to the military changes described above. Also, the top 10 taxpayers make up 15.8% of assessed value. The borough continues to analyze annexation of surrounding unincorporated areas with the potential of adding to the borough's taxable value base.

The 2006 bonds are the final installment from a school bond authorization approved by the voters in October 2004, and are eligible for a 70%-100% reimbursement of debt service by the state, subject to appropriation. Bond proceeds will finance the borough's capital needs for the upgrade and maintenance of its school facilities. The borough's debt levels are moderate with direct debt at $1,791 per capita, or 2.7% of market value, and overall debt at $1,947 per capital, or 2.9% of market value.

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