Fitch Rates Leesburg, Virginia's $19.7MM GOs 'AA'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the Town of Leesburg, Virginia's (Leesburg) $19.7 million general obligation (GO) and refunding bonds, series 2006B. The bonds, which mature serially on July 1, 2008-2027, will be sold via negotiation with Morgan Keegan and Company, Inc. on Dec. 5, 2006. Davenport & Company LLC of Richmond, VA serves as the town's financial advisor. In addition, Fitch affirms the 'AA' rating on $104 million of outstanding GO bonds. The Rating Outlook is Stable.

The 'AA' rating reflects Leesburg's steadily growing tax base, a strong financial profile that benefits from conservative fiscal policies and limited town functions, and debt levels that should remain moderate as the community approaches residential build-out over the next 10 to 15 years. The rating also incorporates the potential budgetary risk associated with slowing new construction and real estate value appreciation, though Fitch notes the town's recent efforts to begin to mitigate this risk with a designated revenue stabilization fund equivalent to approximately one cent of the town's property tax rate.

Leesburg, the seat of rapidly growing Loudoun County (GOs rated 'AAA' by Fitch), is experiencing significant growth of its own. Since 2000, the population has grown by over 28% to an estimated 36,269 for 2005. As few sizable tracts of land remain within the town's 12 square miles, proposed developments have become mixed use in nature, and redevelopment is becoming more prevalent. Leesburg's job market is modest with stability afforded by the a number of federal government entities in the area and excellent transportation links providing access to the vibrant regional employment base, including major office markets in eastern Loudoun and neighboring Fairfax County. Residential unemployment, recorded at 1.8% in September 2006, is on par with the county's exceptionally low average, and significantly below commonwealth and national averages. Income levels are below the high county measures but well above those of the commonwealth and nation.

Leesburg's financial reserves are sizable and sufficient in relation to the government's funding responsibilities. Town policy requires maintenance of undesignated general fund reserves at 15% of expenditures and the recently established revenue stabilization fund provides additional flexibility in the event of economic downturns. At the close of fiscal 2005, the town's unreserved general fund balance, at $9.6 million, represented 27% of recurring expenditures, significantly above the policy minimum. Unaudited figures for fiscal 2006 indicate a $2.5 million addition to the fund balance, increasing the unreserved fund balance ratio to nearly 32% of spending. The fiscal 2007 general fund budget grows by 7.9% and incorporates a $0.03 real property tax rate reduction to $0.18. Taxable AV grew by an average 15.6% annually over the past five years and over 26% between fiscal 2005 and 2006.

Leesburg's infrastructure is well-maintained and most capital needs relate to road and utility expansions to serve growth. Direct debt is low at 0.76% of full property value and $1,505 per capita. Overall debt levels are more moderate at 1.92% of full property value and $3,813, per capita, reflecting the significant school capital costs borne by the county. Debt service relative to the general fund budget is slightly above average at 11% for fiscal year 2007, but is expected to remain below the policy ceiling of 15%. Amortization is above average at 62% in ten years, contributing to the higher annual debt service cost. Leesburg operates a water and wastewater utility system serving residents and portions of the surrounding county, and associated debt is considered self-supporting and is deducted from the above ratios.

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