Fitch Rates West Warwick, Rhode Island GOs 'BBB'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns a 'BBB' rating to the Town of West Warwick, Rhode Island's (the town) $2.1 million general obligation (GO) bonds. Scheduled for competitive sale on Sept. 15, the bonds will mature Sept. 15, 2006-2025, with semi-annual interest payments on March 15 and Sept. 15, commencing March 15, 2006. Concurrently, Fitch affirms the 'BBB' rating on the town's approximately $17.8 million outstanding GO bonds. The Rating Outlook is Stable.

The 'BBB' rating is based on West Warwick's stable financial operations and adequate reserve levels, steady tax base growth highlighted by a recent revaluation, low debt burden, and manageable capital needs. These credit strengths are balanced by the town's below-average economic indicators and limited employment base. Although the town's overall credit profile is consistent with a higher rating category, the 'BBB' rating incorporates Fitch's concern over the potential liability associated with ongoing litigation regarding a major fire in 2003.

Located 11 miles south of Providence, West Warwick is a small residential and industrial community whose population grew a manageable 2.9% during the 1990s to an estimated 30,114 in 2004. Once dominated by large textile manufacturers, the local economy has diversified within the manufacturing sector. Unemployment rates have traditionally been above those of the county, state, and nation. Income levels are below the county's and slightly lower than the state's and nation's averages.

Benefiting from prudent revenue forecasting and effective cost controls, West Warwick's financial operations are relatively stable. Fiscal 2004 ended with a small general fund drawdown, significantly below the $2.7 million originally budgeted. The unreserved and undesignated general fund balance stood at 7.8% of total expenditures and other uses at the close of fiscal 2004, exceeding the town's policy of 5%. Preliminary results for fiscal 2005 indicate a general fund surplus and an unreserved and undesignated general fund balance of approximately 6.3% of total expenditures and other uses.

The adopted budget for fiscal 2006 incorporates a tax levy increase of approximately 5.2% and includes salary increases for currently outstanding labor contracts. The town relies heavily on state aid for education and assumes level aid for fiscal 2006. The budget also includes a fund balance appropriation of $2.7 million, an amount similar to those budgeted in prior years. However, actual results are generally better than budgeted, and the town's high tax collection rates and a 68% boost in assessed valuation following a recent general revaluation should help the town preserve satisfactory financial flexibility.

At $582 per capita and 0.83% of market value, direct debt levels are low and should remain so given the town's manageable capital needs. The current capital improvement plan through fiscal 2010 totals a modest $18.6 million, of which 20% and 13% are for school improvement needs and the self-supporting sewer fund, respectively. Remaining capital needs center on infrastructure improvements and maintenance and are expected to be financed internally. Debt service is an above-average 12.3% of budget but mitigated somewhat by the above-average principal amortization rate of 64.3% in 10 years.

The town continues to be involved in ongoing litigation relating to a February 2003 fire at a local musical venue. The decision by a federal district court to certify the matter as a class action is yet to be made, and town officials estimate that the matter will remain pending for the next three to four years. Although the town reportedly maintains approximately $4 million of liability coverage over the incident, Fitch remains concerned with the uninsured exposure faced by the town and any contingent liability that may arise from future legal judgment or settlement. The town's 'BBB' rating incorporates Fitch's concern associated with these uncertainties.

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