Fitch Rates Town of Fairfax, CA's GOs 'AA'.

SAN FRANCISCO -- The Town of Fairfax, CA's approximately $1.8 million general obligation (GO) bonds, series 2006, are rated 'AA' by Fitch Ratings. In addition, Fitch affirms its 'AA' rating on $5 million GO bonds outstanding. The bonds are expected to sell via negotiation by UBS Securities LLC during the week of July 17. The Rating Outlook is Stable.

The 'AA' rating reflects the Town of Fairfax's wealthy and growing tax base, historically sound financial operations with healthy reserves, low debt levels, and proximity to the San Francisco Bay Area labor market. These strengths are somewhat offset by new capital improvement needs as a result of recent flooding in the region as well as below-average debt amortization. While reserve levels in the economic uncertainties fund are expected to decline in the short term, officials anticipate restoration of the general fund balance pending receipt of insurance proceeds.

Fairfax is located roughly 20 miles north of San Francisco. This small, predominantly residential community of 7,300 residents is characterized by above-average wealth levels and low unemployment rates. Population growth has slowed since 2000 as the town approaches full build-out. Assessed value continues to grow steadily, benefiting from increasing home prices in the area. Fairfax's local economy remains driven mainly by locally owned and operated commercial entities, particularly in the retail sector. The town's proximity to San Francisco provides additional employment opportunities. Marin County's unemployment rate at 3.9% in 2005 remains below state and national averages of 4.3% and 5.1%, respectively, and reflects continued improvement since 2002.

The town's fiscal 2005 financial position is favorable, with an operating surplus recorded after two years of slight operating deficits. The general fund balance totals $1.7 million, or a healthy 25% of expenditures and transfers out, representing about a $270,000 increase over the previous year. Revenues benefited from a $920,000 increase in tax revenue, primarily property taxes due to increasing assessed value. Town residents also recently passed a $125 parcel tax in June 2005 that will generate revenues to be used solely for fire services, public works safety improvements, and funding for youth services. Expenditures also grew in fiscal 2005, mainly as a result of higher public safety costs. Labor relations are reportedly good, and negotiations for fiscal 2007 contracts are underway.

Recent flooding in the southern Marin County area has resulted in $5 million in damages to numerous public facilities in Fairfax, including the town hall and several roads and pedestrian bridges. The town spent $780,000 in repair costs in fiscal 2006, significantly depleting an internal economic uncertainties fund within the general fund. The town, however, anticipates nearly full reimbursement from its insurance provider, National Flood Insurance Program, and the Federal Emergency Management Agency (FEMA) within two years for all repair costs, and expects to refill its economic uncertainties fund with these reimbursements. Fitch views the replenishment of this internal fund and other available reserves as critical to the health of the town's financial position as well as its long-term credit quality. Nonetheless, despite sizeable repair costs, unaudited projections for fiscal 2006 suggest a small increase in the fund balance, and management expects to budget for an additional surplus in fiscal 2007.

The current issuance represents the third and final installment of a $6.8 million authorization approved by 68% of voters in November 1999. The authorization funds the construction of street, storm repairs, and building improvements. Direct debt levels are low at $929 per capita, or 0.8% of full market value. Overlapping debt, including issuances by Ross Valley School District, Tamalpais Union High School District, and Marin County, is low-to-moderate, bringing debt levels and ratios to $2,870 per capita and 2.4% of full market value, respectively. Payout is slow at 28% in 10 years. The town does not currently plan to seek additional voter approved debt.

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