Fitch Rates Anne Arundel County, Maryland's $49MM Rfdg GOs 'AA+'; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings has assigned an 'AA+' rating to Anne Arundel County, Maryland's
(the county) estimated $48.9 million general obligation bonds (GOs), 2009
refunding series. The GOs consist of $30.17 million consolidated general
improvements series, 2009 refunding series and $18.69 million consolidated water
and sewer bonds series, 2009 refunding series. The GOs will refund certain
outstanding general improvement and water and sewer bonds. The GOs are scheduled
to price via competitive sale on July 9, 2009. In addition, Fitch affirms the
county's $999 million outstanding GO bonds at 'AA+'. The Rating Outlook is
Negative.

The 'AA+' rating incorporates the county's vibrant economic base, centered on
major governmental and national military-related employers, above-average wealth
characteristics, and moderately low debt. The Rating Outlook reflects the
county's rapidly weakening reserve levels and diminishing financial flexibility,
attributable in part to a reduction of housing related revenues. Fitch believes
that current budgetary projections, even though they were recently revised
downward and call for further use of reserves in the current and upcoming fiscal
years, may not incorporate sufficiently conservative assumptions. County efforts
to offset the revenue decline are somewhat limited by a charter-imposed cap on
the property tax levy growth rate, although a substantial cushion exists in the
taxable assessed base should property values further weaken. The county's income
tax rate, well below the statutory maximum, provides additional revenue raising
capacity. Fitch believes, however, that optimistic budget projections coupled
with modest reserves limit the county's ability to respond to the continued
revenue declines likely, given the current economic climate and the
uncertainties of the real estate market. A decline in reserves beyond what is
now forecast for fiscal 2009 and 2010 will place downward pressure on the
rating.

Anne Arundel County is located 13 miles east of Washington, D.C., bordered by
the Chesapeake Bay on the east and Baltimore County on the north. A part of the
Baltimore-Washington corridor, the county's strong economy is anchored by
government and defense related contractors. Maryland state government is based
in Annapolis (the city's GO bonds are rated 'AA+', with a Stable Rating Outlook,
by Fitch), the county seat, and within the county there are significant federal
installations, including the National Security Agency (NSA), Fort Meade, and the
U.S. Naval Academy. The most recent Base Realignment and Closure Commission
(BRAC) recommendations will bring the Defense Information Systems Agency and
other Defense departments' activities to Ft. Meade, resulting in 5,700 direct
jobs and over 16,300 indirect jobs and increasing Ft. Meade's regional economic
impact to an estimated $5 billion. Additionally, Anne Arundel is home to
Maryland's major commercial airport, Baltimore-Washington International Thurgood
Marshall Airport (BWI) and is Maryland's top-ranking tourist destination,
benefiting from $1.8 billion in annual tourist spending. New mixed-use
developments under construction, many of which were given new impetus by the
BRAC recommendations, should further strengthen the economy. The residential
unemployment rate of 6% in April 2009 was well below state and national
averages. Per capita income is well above both the state's and nation's.

The fiscal 2008 $47 million general fund draw-down, the first since fiscal 2003,
was offset by the high $72.9 million in pay-as-you-go capital financing. The
weakening real estate market yielded recordation and transfer taxes $18 million
below budget. Anne Arundel ended the fiscal year with a fully funded revenue
stabilization fund of $47.8 million, which coupled with the unreserved fund
balance equaled a solid 8.3% of spending. Fiscal 2009 projected recordation and
transfer taxes collections of $55 million are below both the $83 million budget
and mid-year revisions. Current income tax collections are estimated to be below
budget. Reduced operating and pay-as-you-go capital spending will only partially
offset declining revenues. The county anticipates the use of around $17 million
of the revenue stabilization fund as well as unreserved fund balance, resulting
in reserve levels equal to about 2.8% of expenditures, transfers out, and other
uses. Fiscal 2010 financial pressures, including declining state funding, will
be addressed through operating reductions, limited pay-as-you-go funding, and
one-time revenue enhancements. Fitch believes that income tax and recordation
and transfer tax projections remain optimistic, leaving the county little
flexibility should revenue collections fall below budget or state funding be
further reduced. Flexibility lies in the county's income tax rate, just under
2.6%, which is among the lowest in the state and well below the state mandated
3.2% cap, although a majority of the council must approve a rate change.
Additionally, the Homestead Tax Credit, which limits annual growth in property
assessments, provides stability to property taxes, the county's largest revenue
source.

The county's debt levels will remain moderately low, well within conservative
debt affordability targets. Overall net debt equals $1,640 per capita and 1% of
market value, and amortization is rapid at 72% within 10 years. The county's
$1.8 billion six-year capital improvement plan (CIP) for fiscal years 2010-2015
will be 32% funded by pay-as-you-go and other non-long-term debt funding. The
county projects that during the course of the CIP its debt service as a
percentage of revenues will not exceed a reasonable 9.8%.

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.

Fitch Ratings, New York
Barbara Ruth Rosenberg, 212-908-0731
Amy Laskey, 212-908-0568
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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