NEW YORK, April 3, 2009 -- Moody's Investors Service has affirmed the A2 rating on the City of Brewer's (ME) $8.16 million in outstanding rated general obligation debt. The bonds are secured by the city's general obligation unlimited tax pledge. The A2 rating reflects the city's healthy financial position, a suburban tax base that has benefited from recent economic development initiatives, and a modest debt burden.

SOLID FINANCIAL POSITION DUE TO WELL-MANAGED OPERATIONS

Moody's expects the city's trend of healthy financial operations to continue given management's conservative budgeting practices as reflected in the city's solid reserve levels. The city recorded four consecutive years of positive surpluses through fiscal 2007, increasing General Fund balance to $5.37 million or a healthy 18.3% of revenues. Favorable financial performance continued during fiscal 2008, wherein the city recorded a $1.07 million operating surplus primarily due to conservative revenue projections. Despite the healthy surplus margin, General Fund balance increased by a more limited $506,000 as a result of the restatement of fiscal 2007 ending fund balance to $4.81 million caused by a prior period adjustment of expenditures for teachers' summer salaries to comply with GAAP. Accordingly, ending fiscal 2008 fund balance increased to a still-healthy $5.88 million or 18.8% of revenues.

The fiscal 2009 budget represents a 4% increase ($1.15 million) over fiscal 2008 budgeted expenditures, largely attributed to an increase in debt service and building and grounds expenditures. Offsetting the budgetary growth is a $385,000 increase in appropriated fund balance. City officials believe that the budget is conservatively structured to replenish a portion of appropriated fund balance, primarily as a result of positive state revenue variance and debt service savings. General Fund balance is projected to increase to approximately $6.12 million (19.6% of budgeted revenues) at year end (June 30), $4.25 million of which will be undesignated (13.6% of budgeted revenues).

Taxes are the city's primary source of revenue, making up 47.3% of total revenues in 2008, and intergovernmental revenues made up the second largest source at 34.3% in the same year.

SUBURBAN TAX BASE WITH HIGH TAXPAYER CONCENTRATION

A suburb of the City of Bangor (G.O. rated Aa3), Brewer is a residential-industrial mixed community with considerable recent economic development and a modestly sized tax base of $786 million. City income levels are strong, as seen by per capita income equal to 103.2% and 93.4%, respectively, of the statewide and national medians. The full market value of the city's tax base has increased at a healthy average annual rate of 9.6% during the past five years, reflecting unprecedented industrial growth and some property value appreciation. Significant taxpayer concentration exists, as the top 10 taxpayers represent 21.5% of total tax base. Moving forward, the city expects the assessed valuation of the tax base to decline slightly given the closing of the city's second largest taxpayer, ZF Lemforder (an auto parts manufacturer) and the conversion of the Brewer Professional Center, currently the city's fourth largest taxpayer, to non-profit, non-taxable property.

Management has adequately planned for the impact of the valuation changes and all other top taxpayers are reportedly stable. Full value per capita of $86,595 is slightly below the state average for similarly-rated credits.

LOW DEBT LEVELS EXPECTED TO REMAIN MANAGEABLE

Moody's anticipates that the city's average debt burden of 2% will remain manageable given minimal future debt plans. The city plans to issue $1.4 million for various capital projects and roughly $1.53 million for water and sewer projects, about $603,000 of which will be funded with Federal stimulus money. The city has a slightly above average principal amortization rate, with 78.1% of debt paid within 10 years (state median of 74.9% in 10 years), and debt service comprised 7.1% of fiscal 2008 operating expenditures. All of the city's debt is fixed rate and the city is not party to any derivative agreements.

KEY STATISTICS:

2007 Population: 9,079

2009 Full valuation: $786 million

Full value per capita: $86,595

1999 Per capita income
(as % of state and US): $20,158 (103.2% and 93.4%)

1999 Median family income
(as % of state and US): $46,632 (103.2% and 93.2%)

Net direct debt burden: 2%

Overall debt burden: 2.4%

Payout of Principal (10 years): 78.1%

FY 2008 General Fund Balance: $5.88 million
(18.8% of General Fund revenues)

FY 2008 Undesignated General Fund Balance:
$4.26 million (13.7% General Fund revenues)

Long-term G.O debt outstanding: $14.69 million
($8.16 million rated debt)

RATING METHODOLOGY USED AND LAST RATING ACTION TAKEN

The principal methodology used in the rating affirmation of the City of Brewer (ME) was "Local Government General Obligation and Related Ratings," which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

The last rating action was on October 11, 2001 when the G.O. rating of the City of Brewer (ME) was upgraded to A2 from A3.

ANALYSTS:

Lauren Von Bargen, Analyst, Public Finance Group, Moody's Investors Service Conor McEachern, Backup Analyst, Public Finance Group, Moody's Investors Service

Patrick Mispagel, Senior Credit Officer, Public Finance Group, Moody's Investors Service

CONTACTS:

Journalists: (212) 553-0376

Research Clients: (212) 553-1653　

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