Fitch Rates Montgomery County, Maryland's $284.5MM GOs 'AAA'.

Business Editors

WASHINGTON--(BUSINESS WIRE)--March 26, 2004

Fitch Ratings assigns an 'AAA' rating to Montgomery County, MD's (the county) $284.5 million general obligation (GO) bonds, consisting of $165 million consolidated public improvements bonds of 2004, series A and $119.5 million consolidated public improvement refunding bonds of 2004, series A. The offering is scheduled for a competitive sale on March 30. Proceeds of the new bonds will provide permanent financing for various capital construction projects and the refunding bonds will refund approximately $107 million in outstanding GO bonds for net present value savings estimated at 4% of refunded par. Fitch also affirms the 'AAA' rating on the county's approximately $1.3 billion of outstanding GO debt. The Rating Outlook is Stable.

The 'AAA' rating reflects the county's broad and diverse economy, enhanced by the U.S. government's extensive presence and residual expansion of the information and biotechnology industries, strong fiscal management, and manageable debt levels with rapid amortization. Prompt and decisive action to address near term financial pressures and restore financial flexibility as part of the fiscal 2005 budget process highlight the county's superior credit standing.

The county enjoyed strong revenue collections relative to budget prior to fiscal 2003, allowing it to fill its revenue stabilization fund (RSF), in addition to maintaining sizable general fund reserves. However, reductions in state aid, a slowing of various tax receipts, and increasing capital needs required the county to develop a fiscal 2004 budget that raised the income tax to its maximum level, temporarily diverted pay-as-you-go capital financing to operations, and lowered reserve levels. However, favorable revenue variances for fiscal 2004, principally from income and recordation taxes, substantially improve the budget year fiscal outlook. The county executive's proposed fiscal 2005 budget significantly increases pay-as-you-go funding from the prior year and restores the budgeted total reserve operating margin back to its policy of 6%, one year earlier than initial projections.

Montgomery County, with a 2000 population of 873,341, borders Washington, D.C. and northern Virginia. The county's wealthy suburban economy is fueled by a large U.S. government presence, which provides some stability during slower economic times. The biotechnology sector continues to expand, drawing on the county's well educated labor force. Unemployment rates remained below state and national averages in January 2004, averaging 2.6%. Assessed value (AV) growth has averaged a steady 4.2% annually since fiscal 1999, and Maryland's three-year phase-in of annual AV increases should contribute to solid tax base growth over the next several years. In 2001, the county was ranked 11th in the nation on a per capita income basis, up from 13th in 2000.

Debt levels are moderate and amortization remains rapid at about 70% in 10 years. Excluding debt of the Washington Suburban Sanitary Commission (WSSC), which is secured by property taxes but actually payable from assessments on properties served, overall debt equals $2,645 per capita, or 2.7% of full market value. If WSSC debt is included, overall debt remains a moderate $3,882 per capita, or 3.9% of full market value. The 2005-2010 proposed countywide $2.18 billion capital plan includes general obligation bond funding of about 52%, with pay-as-you-go funding contributing 25% (up from 12% from the current capital plan).