SAN FRANCISCO -- Fitch Ratings assigns an 'AA-' rating to approximately $110.3 million County of Riverside's 2007 certificates of participation (COPs or certificates), 2007 Series A and 2007 Series B (auction rate securities) consisting of:

-- $86.1 million 2007 COPS (Public Safety Communication Project);

-- $24.2 million Refunding COPs (1997 Lease Refunding Project)

The 2007 series A certificates are scheduled to sell via negotiation led by Lehman Brothers August 9. The 2007 series B (Auction Rate Securities) will price on August 21. The Rating Outlook is Stable. In addition, Fitch also affirms the 'AA-' rating on various outstanding lease obligations and COPs as well as the 'AA' implied general obligation bond rating. The Rating Outlook is Stable.

The certificates are being issued to finance the acquisition and installation of an 800 MHz public safety radio communications system and to refinance the outstanding 1997 COPs. During construction of the project, the County Administrative Center and the projects financed with the 1997 COPs will be the leased asset, eliminating the need for capitalized interest. Once complete, the county intends to use portions of the financed project as the leased asset. Lease provisions are standard and typical of California leases, including a debt service reserve fund.

The 'AA-' rating reflects Riverside County's (the county) continued strong financial operations and reserve levels, growing and diversifying economy and tax base, and good fiscal management. Credit concerns center on the region's very weak and deteriorating housing market and its impact on county revenues such as permit fees and property and sales taxes. The Stable Rating Outlook reflects Fitch's expectation that the county will contain its expenditure growth to maintain structural balance as revenue growth slows.

The county has experienced rapid population and economic growth since 2000, increasing in population by over 30% from 2000-2007. Job and labor force growth has likewise been strong, increasing by 3.6% and 3.7% annually on average since 1999, but is expected to grow at a more moderate 3% in 2007. Major employment sectors are led by government (17%) and retail trade (13%), followed by professional and business services (11%) and construction (10%). The real estate sector data shows stress from a significant increase in mortgage delinquencies and foreclosures. Also, construction employment gains have slowed and the sector remains vulnerable. Wealth indicators remain below average; per capita income in 2005 was about 74% and 79% of state and national averages respectively. Meanwhile median home prices in the county remain below surrounding counties.

The growing economy and tax base coupled with good cost controls have enabled the county to steadily add to its fund balance. Audited results for fiscal 2006 show a second year of a general fund surplus of over $100 million, bringing the total fund balance to $447 million, or 22% of expenditures and transfers out. The county's 2006 fiscal year-end unreserved fund balance rose to $346 million, a strong 17% of expenditures and transfers out (up from 8.7% in fiscal 2004), providing good financial flexibility. The county's budget policies include a reserve for economic uncertainties sized at 15% of discretionary revenues.

Fitch balances these positive financial results with concern regarding the economic effects of the severe downturn in the residential housing market, which includes high rates of foreclosures, increased voluntary assessed value reductions by the assessor. The probable ancillary effects on the regional economy include reduced construction and real estate employment and declining permit fees and sales and property transfer tax revenues.

The county's tax base is diverse. The top 10 taxpayers represent just 2.2% of revenues; however, four of the top ten taxpayers are homebuilders reflecting their important role in the economy. Fueled by population gains, assessed valuation (AV) growth has been robust. From fiscal 2002 through estimated 2008, AV increased an average of 15.5% per year, however the estimated gain in fiscal 2008 is 16% compared to 22% the prior year. In addition, permit values declined 26% in 2006 compared to 2005. Fitch notes that offsets to potential declines in property values are provided by the large portion of properties with base year assessed values prior to fiscal 2004 which only increase by 2% per year rather than to actual market value. Furthermore, ongoing commercial development and turnover of older existing property will increase AV. In spite of the current housing downturn, long term prospects for economic growth remain positive in the county due to the availability of affordable land and the county's location along major transportation corridors, and near major seaports and a cargo-oriented airport.

The county's direct debt burden is low, equaling just $564 per capita and 0.6% of market value. Including overlapping debt, debt ratios remain moderate, with issuance offset by population and AV gains. Overall debt totals about $2,900 per capita and is about 2.8% of market value.

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