Fitch Rates Virginia Beach, VA GOs 'AA+'.

Business Editors

WASHINGTON--(BUSINESS WIRE)--May 14, 2003

Fitch Ratings assigns a 'AA+' rating to the City of Virginia Beach, VA's approximately $81,230,000 general obligation bonds, scheduled for bids on May 29. The offering, which is dated May 15, 2003, consists of $50,000,000 of public improvement bonds, series 2003A and approximately $31,230,000 public improvement refunding bonds, series 2003B. The new money bonds will mature serially from May 1, 2004-2023. The refunding bonds will refinance approximately $27.5 million of general obligation bonds for net present value savings estimated at 3.1% of refunding par and will mature from May 1, 2004-2015. At this time, Fitch also affirms the 'AA+' rating on the city's $519.4 million of outstanding general obligation bonds. Virginia Beach's general obligations are secured by an unlimited ad valorem taxing pledge. The Rating Outlook is Stable.

Virginia Beach's 'AA+' rating is based on its strong financial management and operations, moderate debt levels, substantial use of current resources for capital projects, and diversifying economy. Although the city's economy is heavily reliant on the military, the armed forces' commitment to the region has been strong and consistent. Recent military activity and troop deployments are reportedly not having a significant impact on the economy; in fact, the city's economy appears to be remaining stable during this time of nationwide economic slowdown. Virginia Beach effectively managed the substantial growth and related capital needs experienced in the previous two decades through the significant use of current resources and debt issuances with rapid amortization. Development restrictions in the southern portion of the city should restrain the demand for infrastructure extensions, allowing for city resources to be expended in targeted redevelopment areas.

Virginia Beach, in the Hampton Roads section of Virginia, is the commonwealth's largest city, with an estimated 2002 population of 428,400. Oceana Naval Air Station, the U.S. Navy's largest Master Jet Base, is located in the city and is the largest employer. Although military and tourism are still the largest sectors of the economy, the economic base continues to diversify. A core central business district is now anchored by the Town Center office tower, completed last year; this special district will be gradually built up in phases over the next several years. A $197 million convention center project, which will replace the existing center with one three times its size, is on track to open its first phase in 2005. The new 500,000 square-foot facility will aid in the city's efforts to expand year-round tourist activity. The residential unemployment rate of 3.6% for February 2003 is well below the regional, state, and national averages. Per capita income levels in Virginia Beach are close to state and national averages, but grew somewhat more slowly over the past decade.

Stable management and conservative planning have resulted in significant financial flexibility. Fiscal 2002 results were positive, ending with an unreserved general fund balance of $92.8 million, equal to 14.1% of expenditures and transfers out. The undesignated fund balance of $59.5 million was in accordance with the budget ordinance level set by the city council to equal at least 75% of the subsequent year's debt service. The city prepares detailed interim financial reports that track performance against budget and against prior year results. Through the third quarter of fiscal 2003, general fund revenues were slightly ahead of fiscal 2002 levels and expenditures are projected to be significantly below budget at year-end. Undesignated fund balance is projected to end the year at $53.5 million, reflecting budgeted appropriations of reserves for capital projects, rather than budgetary imbalance. The fiscal 2004 budget is scheduled for adoption today and includes no property tax increase, but does incorporate an increase in the cigarette tax to $0.50 per pack and other targeted fee increases. The city's revenue sharing agreement with the school system is fully funded. To date, cuts in aid from the commonwealth have had little impact on the city's financial operations.

Conservative use of debt and prudent affordability policies have resulted in moderate debt levels. Overall debt represents $1,487 per capita and 2.35% of market value. The city is close to its debt per capita target of $1,500 and projects that it might surpass this level in the near future. Debt levels are well within other policy ranges. Amortization is rapid, with 74% of general obligation debt retired within 10 years. The six-year fiscal years 2004-2009 capital improvement program (CIP) totals $1.8 billion, of which 55% is to be funded with debt and lease purchases. For fiscal 2004, $42.4 million, or 23% of planned capital spending will come from the operating budget.