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Global Credit Research New Issue 31 MAY 2007 New Issue: Elk River (City of) MN MOODY'S ASSIGNS A1 RATING TO THE CITY OF ELK RIVER'S $3.1 MilliON GO CAPITAL IMPROVEMENT I:l()NDll,llEI!IES 2QOrC<_______ --~- ._--~---------_.._._-----~ Al RATING AFFIRMATION AFFECTS $17.8 MILLION OF OUTSTANDING GENERAL OBLIGATION DEBT, INCLUDING CURRENT OFFERING Municipality MN Moody's Rating ISSUE RATING General Obligalion Improvement Bonds, Series 2007C A 1 Sale Amount $3,135,000 Expected Sale Date 06104107 Rating Description General Obligation Opinion NEW YORK, May 31, 2007 - Moody's Investo~s Service has assigned an A1 rating to the City of Elk River's (MN) $3.1 million General Obligation Capital improvements Bonds, Series 2007C. Concurrently, Moody's has affirmed the A1 rating, which applies to the city's outstanding $17.8 miilion general obligation debt, including the current offering. The Series 2007C issue is secured by the city's general obligation unlimited tax pledge, and will finance several street improvement projects. The A1 rating reflects the city's sizeable and growing tax base located near the Twin Cities metropolitan region, well-managed and stable financial operations with ample reserve levels. and above average debt burden with aggressive principal amortization rate. DIVERSIFYING AND GROWING TAX BASE BENEFITS FROM FAVORABLE LOCATION NEAR THE TWIN CITIES METRO AREA Located 35 miles northwest of the Twin City metro area (Minneapolis general obligation debt rated Aa1, St. Paul GO rated Aa2), and 40 miles southeast of St. Cloud (GO rated Aa3) the City of Elk River acts as the county seat of Sherburne County, and benefits from its location in this high growth corridor. Its sizeable $2.4 billion tax base has grown at a strong 19% five year average annual rate, while its current estimated population of 21,547 has increased 31 % since 2000, reflecting the strong local housing market, and expanding commercial and industrial sector. Through the successful use of TIF districts and increasing the number of active business parks, city officials expect development to continue at its current rate over the near term. Officials furthermore estimate the city's fully built out population to reach 36,000, though more than ha~ of its land remains available for development. Future growth is expected to be aided by the development of the North Star commuter rail system connecting the Twin Cities to 81. Cloud, anticipated to be operational by fall 2009. City wea~h levels approximate state medians, with per capita and median family income at 94% and 115.1% of state levels, respectively. WEll MANAGED AND STABLE FINANCIAL OPERATION EXPECTED TO CONTINUE Moody's believes that the city's financial operations will remain stable and hea~hy, given the city's demonstrated record of sound management with fOlWard looking planning. Historically it has maintained healthy financial operations_ Following five consecutive years of operating surpluses, the General Fund balance increased from $4.6 million, or 46.4% of General Fund revenues, in fiscal 2005, to $4.8 million, or 44% of revenues, in fiscal 2006. Despite the recent reductions in state aid, the city maintained healthy reserve levels and structural balance with prudent management strategies and tight expenditure controls in personnel and capital needs. Additionally, the city maintains over $4.6 million in the Municipal Liquor Fund, and historically transfers on an annual basis into the General Fund, and over half of the balance is liquid and available for operational purposes. Management maintains a General Fund policy of 41.5% of budgeted expenditures, and has never fallen below these levels. City officials anticipated balanced operations for fiscal 2007. Given the conservative budgeting practices and history of prudent fiscal management, Moody's expects the city to maintain healthy financial operations over the near term. ABOVE AVERAGE DEBT BURDEN REFLECTS GROWING REGION