Fitch Rates New Castle County, Delaware $70MM GOs 'AAA'.

NEW YORK -- Fitch Ratings assigns an 'AAA' rating to New Castle County, Delaware's approximately $70 million general obligation (GO) bonds, series 2006A. The bonds are scheduled to sell competitively on Aug. 9. The financial advisor is Fiscal Strategies Group. Fitch affirms its 'AAA' rating on the county's $181 million in outstanding GO bonds. The Rating Outlook is Stable.

The 'AAA' rating reflects New Castle County's strong financial position, diverse employment base anchored by financial services and manufacturing, good economic growth prospects, very low tax rate, and low debt burden. Fitch anticipates that the county will maintain a judicious approach to the use of reserves as officials address a budgetary imbalance and a potential slowdown in real estate transaction tax revenues.

New Castle County is the northernmost of the state's three counties and includes the cities of Newark (GO bonds rated 'AA' by Fitch) and Wilmington. Its estimated 2006 population of 527,986, representing about 62% of the statewide total, grew 12.8% during the 1990s and is up 5.5% since the most recent census. With a broad mix of employment, including several major chemical and auto manufacturing facilities, a sizable government sector, the University of Delaware, and a large financial services industry, the county's unemployment rates are below the national average. Officials expect to experience minimal impact from the 2005 purchase of MBNA, the county's largest private sector employer, by Bank of America. Office vacancy rates are reported to be moderate, as other business activity replaces the vacancies caused by the purchase. The unemployment rate in May 2006 was 3.8%, down from 4.2% in the same month in the previous year. Income levels are above state and national averages.

The county built up unusually high general fund reserves since the late 1990's, due to a combination of moderate overall spending increases, strong growth in the real estate transfer tax (RTT), and state legislation that increased the county's share of the RTT. Spending began to increase at a faster pace in fiscal 2004, but the growth was nearly matched by increasing RTT revenues. Fund balance drawdowns in each of the last two fiscal years are attributable to non-recurring expenditures. Even with the drawdowns, the fiscal 2005 total fund balance was 76% of expenditures and other uses. Officials expect to use a portion of remaining reserves over the next few years to offset continued large expenditure increases related mainly to personnel. However, a rainy day reserve of 20% of budgeted revenues is expected to remain intact. The fiscal 2006 budget included use of $15.8 million in fund balance but it appears that less than $2 million will be used.

The county increased the property tax rate in fiscal 2007 for the first time in 11 years, but even with the 5% increase, officials expect another drawdown of $17.7 million. Officials expect the RTT to decline slightly from the very high fiscal 2006 level of $40.5 million, or 27% of projected general fund revenues. Fitch believes that the county's five-year financial plan provides a sound framework for moving towards reestablishing structural balance. However, the plan assumes continued, albeit lower, annual growth in RTT revenues, which Fitch believes is somewhat aggressive given that these revenues more than doubled in the last five years. Recent data indicate that the number of transactions has remained fairly constant but their value has grown. Very low property tax rates -- which generate the general fund's largest source of revenue - coupled with still very high reserves, provide substantial flexibility to offset any potential decline in other revenues or growth in expenditure demands, primarily related to personnel.

Fitch expects debt levels to increase from current very low levels but to remain affordable. Most of the $374 million capital plan for fiscal 2007-2012 will be debt-funded, and will provide for the installation of a sewer system in the rural southern portion of the county. Officials expect this project, which is expected to cost about $200 million, will be funded with capital recovery fees generated from what is expected to be significant development in this area. Overall debt is just $1,177 and 1.1% of estimated market value, and a high 69% of debt matures within 10 years.

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