Fitch Rates Lincoln County, NC's $1.8MM GO Refunding Bonds 'AA-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 1, 2003

Fitch Ratings has assigned a 'AA-' rating to Lincoln County, North Carolina's approximately $1,800,000 general obligation refunding bonds, series 2003. The bonds are scheduled to sell competitively on July 8, 2003 and mature June 1, 2004-2012. Fitch also affirms the 'AA-' rating on the county's approximately $59.5 million in currently outstanding general obligation bonds. The net present value savings of the refunded issue is estimated to be 6.1%.

The 'AA-' rating is based on Lincoln County's sound financial position, moderate debt levels, and economic growth, spurred by its proximity to the City of Charlotte. The rating also reflects the area's economic concentration in manufacturing. Fitch's concern about the county's lack of a capital improvement plan (CIP) in the face of rapid population growth has been slightly mitigated with the county's recent efforts to assess its capital needs and develop a CIP. However, debt to address the school needs that have been identified may be substantial over the next five years. The rating incorporates a one-notch enhancement due to the oversight of the North Carolina Local Government Commission. The Rating Outlook is Stable.

Lincoln County is in the western portion of North Carolina, northwest of Mecklenburg County. Lincolnton, the county seat, is the only incorporated municipality in the county. The rural character of the area continues to change as residential and commercial growth in the eastern portions of the county are turning the area around Lake Norman into a commuting suburb of Charlotte. Assessed valuation (AV) grew at an annual average rate of 8% over the last five years, including a 21% increase due to a revaluation in fiscal 2001, and is estimated to grow an additional 4% in fiscal 2004. Population in the county has grown at a faster rate than that of the state over the last decade, to an estimated 66,598 people in 2002. School enrollment has grown at the annual average rate of 2.2% over the last six years and is projected to continue to grow at a slightly faster pace for the next several years.

Manufacturing continues to play an important role in the local economy, constituting 30% of the local employment base and 35% of earnings. Effects of the economic downturn are evident in the county's unemployment rate, which rose from 6.4% in April 2002 to 7% in April 2003, higher than state and national levels which were 6.1% and 6%, respectively this past April. While several manufacturing plants have reduced their work forces in the area, others have expanded operations and added employees, including some of the county's top employers like Timken Company and RSI Home Products. Income levels are below state and national averages equaling 77% and 69%, respectively.

The county's financial position is sound. A tax rate increase in fiscal 2002 restored structural balance to general fund operations after a $1.3 million drawdown in fiscal 2001. A $761,000 drawdown in fiscal 2002 was due to the county's write-off of $2.96 million loaned to the water and sewer fund, although the county expects the general fund to be repaid for the rest of the $3 million loan. The fiscal 2002 unreserved general fund balance equaled $9.2 million, or a sound 15.9% of spending. Adding in the state statutory reserve, the balance includes the entire fund balance of $15.6 million, or 27% of spending. The county expects to end fiscal 2003 on budget and maintain fund balances at 2002 levels.

Debt levels are moderate and amortization is above average. The county has begun the process of identifying and preparing a comprehensive CIP. A fiscal 2004-2007 CIP for governmental projects equals $25 million and is funded entirely from pay-as-you-go sources. Recent needs assessment studies have identified $107 million in school related capital needs. As the county prioritizes and identifies funding for the school projects this figure may be pared down, however school enrollment growth projections indicate that significant capital investments will need to be made.