Fitch Rates Municipality of Anchorage, Alaska $1.2B GO Bonds 'AA'.

SAN FRANCISCO -- Fitch assigns a 'AA' rating to the following Municipality of Anchorage, Alaska (the municipality or Anchorage), general obligation (GO) Bonds:

-- Approximately $57.8 million refunding series 2007A (general purpose);

-- Approximately $188.3 million refunding series B (schools)

-- $348.6 million outstanding GO bonds (general purpose)

-- $594.7 million outstanding GO bonds (schools).

The 2007A and B bonds are expected to sell on April 17, 2007 via negotiation with A.G. Edwards & Sons. The Rating Outlook is Stable.

The 'AA' rating reflects the municipality's solid financial position, consistent economic growth and assessed valuation gains, rapid debt repayment and strong fiscal, debt and budgeting policies. Credit risks are centered in the municipality's exposure to the volatile oil and gas industries' corporate headquarters and related services provided in the municipality and through sizeable discretionary state funding of education and capital projects. Also, uncertainty regarding allocation and funding of large retiree benefit obligations is a long-term credit concern for most municipalities in Alaska.

Anchorage's population of over 280,000 represents about 42% of state population. The municipality is the center of business, trade and transportation, healthcare, government and tourism for the Gulf of Alaska region and accounts for about 50% of the state's economic activity in terms of income and retail sales. Anchorage unemployment rates trend below the state but above the national level and income levels are at about the state and national averages.

The municipality maintains a solid financial position, benefiting from an expanding economy and bolstered by prudent management practices. Its financial operations include the school district, which operates under a separately elected board and maintains its own budget and reserves. Including the school district operations, Anchorage ended 2005 with a total general fund balance equal to 10% of its expenditures, transfers out, and other uses. Not including school spending, total fund balances rises to 15% of expenditures and transfers out. The unreserved portion of the fund balance equaled $43.6, or 14.2% of spending, net of the school operations. Prior to 2004, the municipality had a history of using fund balance for general operations, but following the adoption of a fund balance policy limiting fund balance use, the municipality posted surpluses in 2004 and 2005. The municipality expects a modest increase to the unreserved fund balance when the 2006 audited figures are available.

The property tax base is strong and diverse. Assessed value (AV) growth was 7.8% on average annually since 1997, and the top ten taxpayers represent 4.4% of total AV. Property tax represented about 62% of the municipality's 2005 general fund revenues (75% including school revenue). However, in spite of the strong AV growth, property tax levy increases are linked to a population growth and inflation-based index, moderating the benefit of the strong AV gains to the municipality. Furthermore, there is pressure to reduce the tax burden from residential property taxpayers which may limit the municipality's ability to add substantially to its fund balance. However, the municipality's policy of maintaining reserves equal to at least 10.75% of revenues provides sufficient financial flexibility for the rating category considering the stable economy and revenue sources.

As with other municipalities, the state has agreed to reimburse Anchorage annually for certain school district debt service costs, providing funds are available. The state has funded all such entitlements since 1992. Including the state reimbursements, direct debt is moderate, totaling about $2,800 per capita and 3.1% of market value. Without state reimbursement, debt ratios would trend high. The municipality recently received authorization to issue an additional $134 million in general purpose and schools GO bonds, but given the rapid repayment and population and AV gains, debt ratios are expected to remain moderate.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.