2008-06-11 22:09:33 -

- Fitch Ratings assigns its 'AA+' rating to the following Bexar County, TX new issues:

--$15.2 million unlimited tax (ULT) road bonds, series 2008;

--$56.5 million combination tax and revenue certificates of obligation (tax and revenue COs), series 2008;

--$70.7 million combination flood control tax and revenue certificates of obligation (flood control COs), series 2008.

The

bonds are scheduled to price the week of June 16 via negotiation. Additionally, Fitch affirms the 'AA+' rating on the county's outstanding debt constituting $62.5 million limited tax bonds, $25.3 million unlimited tax bonds, $70.7 million tax and revenue COs, and $77.1 million flood control COs. The Rating Outlook is Stable.

The tax and revenue COs and flood control COs are payable from a property tax levy, limited to $0.80 per $100 taxable assessed valuation (TAV) and $0.15 per $100 TAV, respectively, on all taxable property within the county. Additionally, the tax and revenue COs and flood control COs are payable from a subordinate lien on and pledge of net revenues from the county's parking facilities. The road bonds are payable from an unlimited property tax pledge.

The 'AA+' rating reflects Bexar County's large and expanding tax base, improved financial position, and the general overall health of the diversifying local economy. Prudent financial stewardship enabled the county to address a recent imbalance between general fund revenues and expenditures. Additional significant credit factors are the county's very low direct debt burden and the operating and capital pressures stemming from a fast-growing population. Numerous major commercial developments are expected to help sustain the county's positive employment and tax base trends.

Bexar County, with an estimated 2008 population of 1.6 million, has the city of San Antonio as its county seat (GO bonds rated 'AA+'). The local economy is broad, consisting primarily of health care, government, trade, and tourism. The area's health care industry has an estimated annual economic impact of $10 billion. The county's proximity to Mexico is key to international business and trade. Approximately 50% of trade between the U.S. and Mexico passes through the county.

Income levels are generally about 10% lower than the U.S., but only slightly less than state averages. However, growth in area income over the past few years has exceeded state and national norms and is expected to continue to generate strong gains in the near term. The county's unemployment rate, totaling 3.8% in March 2008, is notably below the state average, aided by the metropolitan statistical area's (MSA) job growth of 2.6% in 2007. TAV has surged recently, posting 15% increases in fiscal 2007 and fiscal 2008, due mostly to reappraisal of existing properties.

The county has restored structural balance to its financial operations, evidenced by growing general fund operating surpluses in each of the last four audited fiscal years. Most recently, fiscal 2007 results posted a $5.2 million addition to reserves, increasing the undesignated fund balance to $53.2 million or 18.1% of expenditures and transfers out, well above its 10% fund balance policy. Fiscal 2008 general fund projections point to level reserves although the budget shifted part of the tax rate to the flood control special tax levy in order to finance drainage projects. About 70% of general fund revenue is derived from ad valorem taxes. Public safety expenses dominate the general fund budget, with 40% of appropriations for law enforcement and jail operations. Notably, the fiscal 2008 budget included partial funding of the estimated annual required contribution for the county's unfunded liability incurred for post-employment benefits, indicative of proactive management.

County direct debt is very low at less than $300 per capita and 0.6% of TAV. Overall debt is relatively high at 6.4% of TAV, even after adjusting for state support of local school district debt. Due to rising property values, such state support has declined substantially, increasing the effective overall debt levels for the county which includes 15 different school districts. Including the current offerings, the principal amortization of property-tax-supported debt is still above average at 59% in 10 years, but down from previous levels of 76%.

The county is proposing to issue up to $680 million over a 10-year period in non-voter-approved COs for drainage improvements planned in conjunction with the City of San Antonio, the San Antonio River Authority (SARA), and other regional participants. Previously funded through contractual obligations to SARA, the county will now issue the debt directly, although SARA will continue to provide technical assistance and manage the main river project.

Additionally, the county plans to pursue $415 million in tourism-related projects that will be financed with bonds secured by visitors' taxes. Such taxes are now in place but were extended by voters in May 2008 for this purpose. The county will issue the first installment of this authorization this summer.

Given the 10-year and six-year horizons of the drainage and tourism projects, respectively, Fitch believes that the county's growing tax base and modestly above-average amortization of existing principal will help to alleviate some of the rising debt burden that residents may face.

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
Jose Acosta, 512-215-3726, Austin
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or
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