Fitch Rates Naugatuck, Connecticut GOs 'AA-', Stable Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 5, 2003

Fitch Ratings assigns a 'AA-' rating with a Stable Rating Outlook to Naugatuck, CT's (the borough) $5,700,000 general obligation bonds, issue of 2003. The bonds are dated March 15, 2003 and will mature serially March 15, 2004-2012. The current offering is expected to sell by negotiation with A.G. Edwards & Sons, Inc and Webster Bank on March 11th. At this time, Fitch also affirms the 'AA-' rating to the borough's $41.1 million of outstanding debt. Approximately $2.1 million of the current offering will finance the final phase of planned capital projects and the remaining $3.6 million will refund the 1994 outstanding bonds and provide an estimated present value savings to the borough of approximately 3.8% of the refunded par.

The 'AA-' rating is based on the borough's sound financial performance aided by conservative budget development and its moderate debt burden. The rating also reflects the borough's stable economy that is slowly diversifying and growing as evidenced in the recent revaluation and modest increase in the taxbase's commercial composition. While the tax base growth provides a degree of stability the state's efforts to bridge its own deficit has placed pressure on the borough's budget as reduction in aid is expected in both the short and long term. Overall, the borough's demonstrated willingness to make appropriate revenue and spending adjustments should allow for the retention of the borough's financial flexibility. Furthermore, Fitch expects the borough to implement a formal pension contribution plan by 2004 that will replenish the funding levels characteristic for its current rating.

The borough is a community of about 31,000 just south of Waterbury in the Naugatuck River valley. Historically dominated by larger manufacturing entities, the borough is now home to an increasing number of smaller, diversified companies, including a growing retail sector. Population showed modest growth over the last decade as residents were attracted by more affordable real estate prices and good transportation links to surrounding communities. Total residential employment has fallen 2.5% since 1993, reflecting, in part, corporate restructurings. During this period, the unemployment rate was halved, mostly due to reductions in the labor force; the December 2002 unemployment of 5.2% is above the state average but below that of the U.S. Following the recent revaluation of the 2002 grand list, to take effect in fiscal 2004, the tax base grew by approximately 17% with a minimal level of appeals. The top 10 taxpayers are quite diverse, making up only 6.8% of the net grand list. Income levels are somewhat below that of the high state average, but they are sufficient to support the lower cost of living and on par with the national average.

Naugatuck's financial operations are well managed, with conservative revenue forecasting and good cost control contributing to sound financial results. The undesignated general fund balance totaled 8.4% of fiscal 2002 spending, comparable to prior years, including fiscal 2001 which would have equaled approximately 8% had budget adoption not been delayed due to the borough's first revaluation in 21 years in 2000. The adopted fiscal 2003 budget reflects a 6.5% increase over 2002 and includes a 2.9 millage increase (8.9%) to partially offset potential worst case state aid reductions. Expenditures are conservatively budgeted with increases mostly attributed to increasing insurance costs and the borough's wastewater treatment plant that is offset by its corresponding revenue. The fiscal 2003 undesignated fund balance is expected to be approximately 8.25% of general fund expenditures, above its 5% goal. Reserves established for increases in labor contract costs were utilized as most of the borough's labor negotiations were settled with manageable financial impact. Budget preparations for the fiscal 2004 are currently underway and the borough anticipates additional reductions in state aid up to $1 million. Fitch will continue to monitor the borough along with many other Connecticut municipalities as they respond to the state's efforts to bridge its own deficit in fiscal 2004.

The borough's capital demands are modest as the community is mature and most major infrastructure is in place. Schools, which are typically the largest capital commitment in New England, were mostly renovated in Naugatuck in the early 1990s. Additionally, the borough makes pay-as-you-go investments through its capital reserve that also serve to keep debt issuance to a minimum. With this issuance, debt burden is low at $582 per capita and 1.07% of the equalized net grand list. Adding the $29 million COPS the borough sold in 2002 to improve the privately operated wastewater treatment plant and expand an existing sludge incinerator the debt ratios rise to a still moderate $1,509 per capita and 2.8% of equalized net grand list. Debt service expenditure, including budgeted lease payments on the COPs, is a manageable 8.2% of the fiscal 2003 budget. There are no plans for future general obligation debt.