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FitchRating~ KNOW YORK RISK Public Finance County finances aze stable and the umeserved, undesignated general fund balance has exceeded 14% of spending each year since at least fiscal 2000. Fiscal 2006 ended with an $8.8 million surplus, bolstering the unreserved, undesignated fund balance to $38.4 million, equal to 25% of spending and other uses. Yeaz-to-date performance relative to the budget for fiscal 2007, which included a slight property tax decrease, is positive and the county expects to add to the umeserved general fund balance ratio. The strong fund balance is indicative of the county's solid financial planning which is characterized by adopted financial and budget policies addressing the operational budget, asset-liability management, debt, and swap procedures. Debt levels are currently moderate although the debt service burden as a percentage of expenditures is above average at 14.3% and expected to rise. The county expects the debt service burden on the overall budget to increase as it finances its fiscal years 2007-2011 $347 million capital improvement program. County policy targets debt service at 16% of the general fund expendinues but officials expect that ratio to reach 23% by 20] 1. In addition to the planned COPS for the jail, the county expects to issue roughly $145 million in debt for school construction over the next five years and $45 million in COPS in 2012 to expand the courthouse to the site of the currentjail. ^ Strengths • Sound legal provisions. • Strong financial flexibility resulting in substantial operating reserves. • Strong economy, contributing to substantial labor force growth and unemployment levels below those for the state and nation. ^ Risks • Installment payments subject to appropriation. • Growing capital needs and debt service requirements may pressure available resources. ^ Lease Structure The lease provisions are solid and provide adequate security. The underlying lease structure is standard and typical of North Carolina counties. The county will enter into an installment financing contract with the CCDC, a nonprofit corporation created to assist the county in financing public projects. Under the contract, the county will make installment payments directly to the tmstee, as assignee of the CCDC, in amounts sufficient to cover principal and interest payments. Pursuant [o the indenture of tmst, the CCDC assigns its rights, title, and interest to the [ms[ee, Regions Bank, including the right to receive the county's installment payments. Additional security is provided under a deed of tmst that grants the corporation a benefit of first lien in the leasehold interest in the sheriffs administration building, which is expected to be completed in two years, and the land on which it is located. Mortgaged property can be released from the deed of tmst if the appraised value of the remaining mortgaged property equals I10% of the principal amount of the outstanding installment payments. While the installment payments are not subject to abatement, the payments are subject to annual appropriation. Appropriation risk is somewhat mitigated by the sheriffs administration building's use as collateral and by the building's importance to the county, further demonstrated by Cabarrus's commitment of $1.6 million cash for the land, $2.5 million for equipment and furniture, and $650,000 contingency for [he project. In the installment financing contract, the county agrees to include the installment payments in its annual budget request. In addition to the standard notifications, deletion of the funds from the county's budget requires timely notice to [he local government commission, which provides statewide statutory financial, budgetary, and debt management oversight of existing and future issues. The lease term expires when al] installment payments have been made. Copyright ®100] by Fi«h, Inc., Fimh RminBS Lcd. end iss subsidienu. Onc State Sheet Plaza, NY, NY 10004. Telephone: I~g0095B-4614, QI1) 9080500. Fax: (111) 48094]5. Reproduction ar retransmission in whole or in pen is prohibited except by pem,ission. All rights reserved. All of Ibe infoemesion comained herein M1as bcen obuinad from sources which Fi¢M1 believes are reliable, bus Fi¢h does not verify the mIIM1 or accuracy of the infortnetion. The information in Ibis repan is provided "es ii' withom any repreamation oGwartanry of any kind. A Fi¢h rasing is en opinion as ro the creditworthiness of a security, note «<ommcndasion so boy, sell or hold any security. Cabarrus County, North Carolina ~~'