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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns an 'AA-' rating to the following general obligation (GO) bonds of Wicomico County, Maryland (the county):

--$28.9 million general obligation consolidated public improvement and refunding bonds of 2012.

Bond proceeds will finance the Bennett Middle School Project and refund various outstanding series of outstanding bonds to achieve debt service savings with no extension of maturity dates. The bonds will be offered by the county at a competitive sale on Tuesday, Oct. 2, 2012.

In addition, Fitch affirms the following rating:

--$91.6 million in outstanding GO bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the full faith, credit, and taxing power, subject to constraints set forth in the County Charter.

Revenues derived from taxes on properties shall not increase, compared with the previous year, by more than 2%, or by the consumer price index for all urban consumers, whichever is lesser. New construction and funding the local board of education's budget are not subject to the charter limitations.

KEY RATING DRIVERS

AMPLE RESERVES DESPITE RECENT DRAWS: Despite three conservative years of operating deficits, the unrestricted general fund balance remained ample at $27.63 million or 25.2% of general fund spending at fiscal year-end 2011.

POSITIVE OPERATING VARIANCES: Conservative budgeting, an uptick in income tax revenues and increases to the income and real estate tax rates allowed the county to record multiple years of operating surpluses in fiscals 2011 and 2012.

DIVERSIFYING PREDOMINANTLY-AGRICULTURAL ECONOMY: The county has an established trend of gradual expansion and diversification within and outside of its two industrial parks, although the unemployment rate remains above the state and national average.

DEBT BURDEN EXPECTED TO REMAIN LOW: Overall debt levels are low, amortization of principal is rapid, and county officials prudently analyze capital needs alongside debt affordability.

CREDIT PROFILE

CONSERVATIVE BUDGETING & SPENDING CUTS LEAD TO OPERATING SURPLUS

In response to several years of weak revenue performance, the

county continued aggressive expenditure reductions in fiscal 2011. Cost-cutting included: a reduction to the board of education operating budget, deferral of pension and OPEB contributions, overtime reductions, eliminating vacant positions, modest layoffs, furlough days, and a reduction in capital pay-go spending. Although the pension system remains very well-funded and the county has over funded annual requirements in the past, the decision to not make the annual required contribution is viewed by Fitch as credit negative.

The county's expenditure reductions together with an increase in income tax revenues for the first time in four years and conservative budgeting prompted a favorable operating surplus of $4.7 million after transfers (4.3% of general fund spending). As a result, the unrestricted balance (the sum of assigned, unassigned and committed under GASB 54) increased to $27.6 million or a solid 25.2% of general fund spending. The rainy day fund, which is included in the committed balance, remains funded at the policy level, equal to 5% of the general fund budget ($5.7 million).

POSITIVE OPERATING RESULTS EXPECTED FOR FISCAL YEAR-END 2012

The fiscal 2012 budget was adopted with a $2.1 million general fund balance appropriation in addition to a 1 cent tax rate increase to $0.769 per $100 of assessed value (AV), below the allowable rate under the charter cap of $0.809, to help offset the continuing decline in the county's tax base. A charter imposed revenue limit, approved by county voters and effective in fiscal 2002, constrains the county's property tax revenue growth to the lesser of the CPI or 2%, excluding revenue from new construction and education funding.

Management expects actual year-end results will reflect an operating surplus after transfers of approximately $6.8 million (6.5% of projected spending) due to positive budget variances. Income tax revenue came in 21% over budget reflecting positive changes in the economic condition and over distribution of payment from the state. The county has conservatively budgeted fiscal 2013 income tax receipts taken the later into account.

County management has acknowledged that the substantial increase in income tax revenues relative to the budget was a distribution error and has adjusted estimates for fiscal 2013.

2013 BUDGET

The fiscal 2013 adopted budget is balanced with a maximum real estate tax rate increase of 7.14 cents ($0.84040 per $100 of AV), and an increase to the income tax rate to the maximum rate of 3.2% ($500,000 in additional revenue in fiscal 2013)allowed under state law and a larger $2.62 million fund balance appropriation.

Fitch notes the budget eliminates furlough days ($424,797 in savings in 2012) for the first time in four consecutive years, funds a 2% pay raise ($448,000 cost to the general fund) and allocates funding for capital infrastructure projects for the first time since 2008. The county reports that it retains options to raise revenue, which includes increasing the recordation tax rate, imposing a transfer tax, increasing fees or increasing the real property tax rate for education funding, as education funding is not subject to the revenue cap.

RURAL LOCAL ECONOMY

The county is located on the Delmarva Peninsula in southeastern Maryland and is home to an estimated 2011 population of 99,190. While a large portion of the county remains undeveloped (82%), agriculture, higher education and healthcare provide a solid foundation for the economy. The county is home to the corporate headquarters of Perdue Farms Inc., which is the county's third largest employer employing approximately 3% (approximately 1,300 employees) of the labor force. Salisbury University and Wor-Wic Community College are located in the county, with a combined student enrollment of over 10,000. Peninsula Medical Center, the county's largest employer (6% of labor force), recently completed a $100 million expansion that includes a new emergency trauma center, expansion of the cancer center, and other services.

While growth in the employment base has exceeded the state and national average, it has not kept up with the growth in the labor force. Therefore, the county's unemployment rate continues to exceed the state and national average and as of June 2012 the rate was 8.7%. Wealth indicators are fairly in line with national averages but are well below state averages driven by high wealth counties around the DC area.

FAVORABLE DEBT PROFILE

Overall debt levels are moderately low at roughly $1,063 per capita and 1.5% of market value, and amortization is rapid at 76% in 10 years. The county's fiscal years 2013-2017 capital improvement plan totals $130.3 million. The county requirement totals $60.9 million after the current issuance of which $21.4 million is directly associated with completion of major school construction projects that must be funded. The balance of the project schedules and funding will be evaluated annually as part of the overall capital investment analysis.

PENSION & OPEB FUNDED LEVELS REMAIN WELL FUNDED

The county provides a single employer retirement system. After reaching a funded ratio of 100% (95% after adjusting the IRR to 7% from 7.75%) in 2007, the county only funded a modest amount of the ARC in 2010 ($402,000 or 26% of the ARC) and 2011 ($197,000 or 14% of the ARC), and a higher contribution ($1.6 million or 83% of the ARC) in 2012, which reduced the funded ratio to a still strong 89% (84% after adjusting the IRR to 7% from 7.75%). The fiscal 2013 budget includes a $1.5 million contribution (1.3% of budgeted 2013 spending) for pension costs which is below the $1.9 million ARC but is expected to maintain the funded ratio at approximately 90%.

Beginning fiscal 2013, the state will shift the liability for teachers' pension costs to local governments over a four-year phase-in process. The state is expected to offset the majority of the costs with increases in various revenue streams such as income tax. For fiscal 2013 with the continuing state grant of $1.57 million, plus the estimated value of other state generated revenue enhancements the net effect is expected to be zero.

After several years of funding over the pay-go amount of OPEB costs and fully funding the ARC in 2008, the county only contributed a total of $198,070 between 2010 and 2012 (compared to an annual ARC of $1.4 million) due to budget constraints attributable to the recession and reductions in state revenue. The 2013 budget includes a $1.4 million contribution to OPEB, which represents 54% of the 2012 ARC and a manageable 1.2% of 2013 budgeted spending.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in

Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,

University Financial Associates, S&P/Case-Shiller Home Price

Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 ]

U.S. Local Government Tax-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314 ]

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