Fitch Rates Leesburg, Virginia's $54.7MM Util GOs 'AA'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the Town of Leesburg, Virginia's (Leesburg) $54.665 million general obligation (GO) utility bonds, series 2006, scheduled for competitive bids on March 9. Fitch also affirms the 'AA' rating on $52 million of outstanding GO bonds. The bonds mature serially on July 1, 2007-2036 with semi-annual interest payments on January 1 and July 1, commencing Jan. 1, 2007. Bond proceeds will be used to finance expansions to the town's water treatment and pollution control facilities along with other system projects. 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 a slowing of new construction and real estate value appreciation that may be more acute for a town government with limited land area and annexation capability.

Leesburg, the seat of rapidly growing Loudoun County (GOs rated 'AAA' by Fitch), is experiencing significant population growth of nearly 25% since 2000. Driven by the fact that 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. The residential unemployment rate is exceptionally low at 1.7% in December 2005. Income levels are below the high county measures but well above commonwealth and national averages.

Leesburg's financial reserves are sizable, consistently maintained in accordance with longstanding fiscal policy, and sufficient in relation to the government's funding responsibilities. The undesignated general fund reserve floor is 15% of expenditures and the $9.6 million balance available at the close of fiscal 2005 represented 27% of recurring expenditures and transfers out, well above the targeted level. Periodic transfers to the capital projects fund create some volatility in balances presented, but the town has been in compliance with its 15% policy floor since at least fiscal 1998. Rising property values allowed the tax rate to remain stable at $0.22 per $100 of assessed valuation (AV) for eight consecutive years prior to the $0.01 reduction effective fiscal 2005. Residents also pay county taxes, with the bulk of the county tax going for schools. Taxable AV grew by an average 15.8% annually over the past eight years and over 29% in the last fiscal year.

Leesburg's infrastructure is well-maintained and most capital needs relate to road and utility expansions to serve growth. Direct debt is low at 0.7% of full property value and $1,504 per capita. Overall debt levels are more moderate at 1.9% of full property value and $3,908, per capita, reflecting the significant school capital costs borne by the county. Debt service relative to the general fund budget is above average at 13.6% for fiscal year 2005, but is expected to remain below the policy ceiling of 15%. Amortization is above average at 62% in 10 years, contributing to the higher annual debt service cost. Leesburg owns a water and wastewater utility system serving residents and portions of the surrounding county. Utility system bonds are self-supporting and deducted from the above ratios. Debt service coverage is strong, if somewhat reliant on connection charges, and projections show coverage remaining above 1.25 times (x).

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