Fitch Rates Palm Beach County, Florida Taxable GOs (Land Acquisition Program) 'AAA'.

TAMPA, Fla. -- Fitch Ratings assigns an 'AAA' rating to Palm Beach County, Florida's approximately $107.5 million taxable general obligation (GO) refunding bonds, series 2006, maturing 2006-2019. At the same time, Fitch assigns an 'AA+' rating to the $8.5 million taxable GO refunding bonds, series 2006 maturing in 2020; the bonds maturing in 2020 include 'registered coupons' which are secured solely by the county's covenant to budget and appropriate (CB&A) non ad valorem revenues, and not by the county's GO pledge. Bond proceeds will refinance outstanding series 1999B and series 2001A bonds to effectuate a change in the tax status of the bonds required to sustain the county's agricultural land preservation program. Fitch also affirms the 'AAA' rating on $284 million of outstanding GO bonds and the underlying 'AA+' rating on the county's approximately $689 million of outstanding bonds payable from non-ad valorem revenues. The bonds are scheduled for negotiated sale with a syndicate led by Merrill Lynch on or around June 19. The Rating Outlook is Stable.

Pursuant to Florida statutes regarding advance refundings, the county is required to demonstrate compliance with two tests to issue GO refunding bonds: there must be present value savings as a result of the refunding and the refunding bonds must be issued at a lower net average interest costs rate (NIC) than the NIC of the GO bonds to be refunded. Given the current interest rate environment relative to when the refunded bonds were issued, the county meets neither test. To accomplish the present value test, the county plans to make an equity payment of roughly $2.1 million to reduce the principal amount of the refunding at closing. The county is utilizing a unique structure, incorporating a 'registered coupon' to reduce the NIC to meet the second requirement. The registered coupon is initially attached to the bonds maturing in 2020 and is solely secured by the county's covenant to budget and appropriate (CB&A) non ad valorem revenues. The principal and interest portion of the 2020 maturity, excluding the registered coupon, are solely secured by the county's GO. This structure effectively reduces the NIC of the refunding bonds to be compliant with the second test under Florida law. While the bonds and the registered coupons are each a separate security with separate CUSIP numbers, a failure of the county to pay the interest on any of the registered coupons when due shall constitute a payment default of the bonds with the registered coupon. Therefore, the bonds with the initially attached registered coupons carry the rating of the weaker security. This circumstance of a change in tax status of bonds does not appear to have been contemplated by the statute, thereby creating this unusual situation. Fitch is relying on bond counsel's opinion that the use of this structural mechanism to meet the statutory tests is in compliance with the law.

The 'AAA' rating on Palm Beach County's GO bonds reflects the county's vibrant and diverse economic base, sound financial position, and moderate debt levels. Palm Beach County is one of the nation's wealthiest, with per capita personal income levels 42% and 35% higher than state and national averages, respectively. The economic base is diversified, balancing luxury tourism and technology manufacturing in the coastal areas with agriculture in the western portion of the county. The county's unemployment rate fell to 4.0% in 2005 from 5.0% one year prior. Debt levels are moderate and are expected to remain manageable given well-established debt affordability guidelines and steady tax base and population growth. The 'AA+' rating on the bonds that include the exclusive security of the county's CB&A utilizing the registered coupon reflects the diverse mix of non-ad valorem revenue sources, which Palm Beach County covenants to budget and appropriate to pay debt service, as well as the county's exceptionally strong general credit characteristics.

Palm Beach County's low tax rates, made possible by its prosperous tax base, provide ample revenue-raising flexibility. General fund operations are strong, and following a deficit in fiscal 2005 resulting from one time capital investments and reimbursable hurricane expenditures, the county realized a sizeable surplus in fiscal 2005. Net income after transfers of $34.2 million at the close of fiscal 2005 increased the general fund balance to a healthy $282 million equal to 26% of spending. County officials report that year-to-date performance for fiscal 2006 (fiscal year ending Sept. 30) in the general fund shows favorable variances from the budget, which equaled nearly $900 million, an increase of 11.8% over fiscal 2005. Tax base growth estimated at roughly 21% for fiscal 2007 should provide the basis for another solid year, despite rising property insurance rates and ongoing weather related expenses. The property tax rate, already quite low, was further reduced to 4.45 mills from 4.5 for the 2006 budget year. County officials will consider an additional reduction of 0.1 mill for fiscal year 2007.

Future borrowing plans for the 2006 calendar year include $15 million for a parking facility and $16 million for costs related to the Scripps Biomedical Research Park Project, both secured by the county's covenant to budget and appropriate (CB&A) legally available non-ad-valorem revenue. Financings planned for the next several fiscal years include over $200 million for a county jail facility and about $100 million for infrastructure development related to the Scripps research facility, both also secured by the county's CB&A.

County commissioners recently approved a new location for the Scripps research facility, originally planned for the rural Mecca Farms site located in the northwestern portion of the County. On Feb. 14, the county voted to develop the research facility on the campus of Florida Atlantic University (FAU) in the northern portion of the county. The county and Scripps have reached agreement on contractual terms, and, with support of the governor's office, development of the facility is expected to proceed. The county has begun the process to acquire a tract of land adjacent to the FAU campus and is poised to sell bond anticipation notes (BANs) for the acquisition following due diligence on the land. The county previously sold two series of bonds (2004A and 2005A), totaling $193 million and secured by a CB&A from non-ad-valorem revenues, for the Mecca Farms site acquisition and construction of the Scripps facility, respectively. The series 2004A bonds have an extraordinary call feature that allows them to be redeemed from proceeds of land sales, which is likely to occur now that development is set to commence at FAU. The timing of the sale is unclear. The series 2005A bond proceeds, while intended for use at the Scripps site are legally available and will be used for construction at the new site. The county will issue an additional $100 million in bonds for Scripps development, secured by the CB&A pledge of the county, which will reimburse the forthcoming $16 million in BANs, repay an $11 million banknote, and finance construction at the new site. Costs for the county were expected to be higher at the Mecca site, which required significantly more infrastructure than is needed at FAU.

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