Fitch Rates Virginia Beach, Virginia's GOs 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA+' rating to Virginia Beach, Virginia's (the city) approximately $21.3 million general obligation (GO) public improvement refunding bonds, series 2009A and $23.8 million public improvement refunding bonds, series 2009B. The bonds are scheduled to sell competitively on Nov. 18, 2009, with proceeds refunding certain outstanding GO bonds. The bonds will mature serially, with final maturity on July 15, 2021 for the series 2009A and July 15, 2019 for the series 2009B.

In addition, Fitch affirms the following outstanding ratings:

--$604 million GO bonds at 'AA+';

--$337 million Virginia Beach Development Authority lease revenue bonds at 'AA-'.

The Rating Outlook is Stable.

Virginia Beach's 'AA+' rating reflects its solid financial management, low debt levels, and substantial use of current resources for capital projects. The city's improving income indicators and strong general fund balances are also rating factors. The Stable Outlook reflects Fitch's belief that the city will continue diversifying its economy beyond the traditional military and tourism industries.

Virginia Beach, in the Hampton Roads region of Virginia, is the commonwealth's largest city. Efforts to diversify the economic base are ongoing. The Town Center of Virginia Beach, a city initiative to create a core business area and mixed use development through the establishment of a special tax district, has completed construction of its first three phases, although the fourth is on hold pending a resolution of financing concerns. A proposed light rail system would further expand the economic base and support development throughout the city. Private investments in hotel renovations and construction along the popular beachfront continue, and in 2008 tourism revenues remained at around 2007 levels, in spite of the economic softening. The unemployment rate of 5.9% for September 2009 remained below regional, commonwealth, and national averages. Demonstrating strong average annual growth since at least the beginning of the decade, wealth indicators in Virginia Beach are around the commonwealth's and above the national average.

Stable management and conservative planning have resulted in significant financial flexibility. Fiscal 2008 ended with an unreserved general fund balance of about $182 million, equal to a strong 18% of expenditures, transfers out, and other uses. The unreserved, undesignated fund balance of $120 million was well within the ordinance level set by the City Council to equal at least 8%-12% of the subsequent fiscal year's revenues. At the end of fiscal 2009, the city anticipates a fund balance reduction, partly to fund one-time expenses, and its undesignated fund balance will be slightly above policy minimums. The fiscal 2010 budget includes mild expenditure reductions and an unchanged tax rate and does not anticipate a further decline in fund balance. Results year to date suggest expenditures below budget and a possible revenue shortfall. Conservative fiscal 2011 forecasting is identifying expenditure reductions that exceed a projected budgetary gap.

Debt affordability policies have resulted in moderately low debt levels well within target ranges. Debt is $2,191 on a per capita basis and 1.6% of market value. Amortization is rapid, with 64.2% of tax-supported debt retiring within 10 years. The fiscal years 2009-2014 capital improvement program (CIP) totals $1.2 billion, of which a high 36% is to be financed through pay-as-you-go capital funding and 42% through debt and lease purchases. The city projects adherence to its debt policies during the course of the CIP, although it will reexamine certain debt policies to accommodate additional debt for planned economic development projects.

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