Fitch Upgrades Warren, OH's LTGOs to 'A-'.

CHICAGO -- As part of ongoing surveillance, Fitch upgrades to 'A-' from 'BBB+' the City of Warren, OH's $10.9 million of outstanding limited tax general obligation bonds. The Rating Outlook is Stable.

The upgrade to 'A-' reflects the city's improved budgetary management and financial flexibility, and low debt position despite the local economy's continued exposure to manufacturing industries. Through disciplined expenditure controls and public campaigns that secured an income tax increase, the city built adequate fund balances that provide a cushion against a downturn in the local economy. The majority of the city's outstanding debt and planned capital projects are paid from water and sewer revenues, keeping the tax-supported portion of direct debt to a minimum. In addition, success in winning federal grants for infrastructure projects supports maintenance of the city's low direct-debt position.

Located in Trumbull County, about 14 miles northwest of Youngstown, Ohio, the city has the largest population in the county with 46,608 residents in 2003. While residential use represents the largest portion of tax base at 68.5%, commercial and industrial use remain significant at 27.0%. Assessed value (AV) has shown stable growth at 1.6% annually over the past 10 years, reflecting the city's economic development efforts. Working through federal grant programs such as the Community Development Block Grant and the U.S. Department of Housing and Urban Development, the city achieved measured success attracting new small businesses and revitalizing its stock of low to moderate income housing. In addition, a $40 million, higher-end residential development currently under construction should further support the tax base.

The city's local economy has diversified, but still depends heavily on automotive and other durable manufacturing. Durable goods manufacturing represented 43.3% of total earnings in 2002, down from 54.2% in 1993, while the service sector has grown to 20.6% of earnings from 15.3% over the same period. General Motor's Lordstown assembly plant is the city's largest employer with 7,200 employees. The plant manufactures Pontiac Sunbirds, and GM agreed to use the Lordstown plant to produce the new Chevrolet Cobalt following the Cavalier model's discontinuation, allowing the city to retain about 3,000 positions. Delphi Packard Electric Systems is the second-largest employer with about 6,470 employees in the city and the county. While in recent years Delphi has consolidated some of its operations outside the city but still within county limits, municipal income tax receipts have not been affected adversely. Despite the dominance of manufacturing, the tax base remains fairly diverse, with the largest 10 taxpayers accounting for 9.8% of AV and the largest taxpayer, Ohio Edison, representing 2.1% AV.

The city maintains sound financial operations with total general fund balances equal to 18.0% of spending in 2004 (years end Dec. 31), up from 11.5% in 1997. In 2001, voters passed a half-percent increase in the municipal income tax, which generated a stronger, more diverse revenue stream. Voters reapproved the 2.0% income tax rate in 2004 that expires in 2007. In addition, management increased collection efforts, creating a Tax Administrator position in the City Treasurer's office in 2002, resulting in higher compliance with income tax filing. Fitch expects breakeven results in 2005 general fund operations.

The City's direct debt position is low at 0.85% of market value and $245 per capita. Adding in the debt of overlapping entities, mainly Warren City School District, the overall debt level rises to 3.83% of market value or $1,149 per capita. Direct debt should remain low as water and sewer systems fees and federal and state grants support the majority of capital requirements.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.