Fitch Ratings assigns an ''A'' rating to the city of Worcester, Massachusetts'' $38 million general obligation (GO) municipal purpose loan of 2009 bonds. The bonds are scheduled to sell competitively on Oct. 27, 2009, with proceeds retiring currently outstanding bond anticipation notes and paying capitalized interest costs on the CitySquare financing for fiscal years 2010 and 2011. Fitch also affirms the ''A'' rating on the city''s approximately $562 million of outstanding GO bonds. The Rating Outlook is Stable.

The ''A'' rating reflects Worcester''s prudent financial management, which is evidenced by officials'' prompt action to address budgetary imbalances; modest reserve levels; and a stable employment base anchored by higher education and health care institutions. Considerable excess tax levy capacity under the commonwealth''s Proposition 2 1/2 somewhat offsets thin general fund reserves, but its practical application may be limited in the current economic environment. The rating further incorporates the city''s below-average economic indicators and weak financial results in fiscal 2009. A key rating driver is the maintenance of currently adequate levels of overall financial flexibility, despite a high fixed cost burden and the potential for further declines in state aid and other economically sensitive revenues.

Midyear state aid cuts, weakness in economically-sensitive revenues, and continued snow removal cost overruns contributed to a $5.8 million operating deficit in fiscal 2009 (unaudited), which brought the city''s unreserved general fund balance to $6.1 million, or a slim 1.1% of spending. Officials limited the extent of the deficit with revenue enhancements and by reducing the size of Worcester''s workforce, thereby positioning the city well to contend with a $31.4 million budget gap going into fiscal 2010. Worcester successfully obtained important labor concessions including 0% wage increases in fiscal 2010 and higher cost-sharing arrangements for health care payments that should benefit its financial position in future fiscal years. The city''s $491 million budget prudently includes a $1 million reserve for possible midyear cuts to state aid. While the city continues to make contributions to three stabilization funds in accordance with its Five Point Plan and intends to bring general fund balances to 5% of revenues over time, its overall financial flexibility weakened in fiscal 2009.

Worcester''s location in central Massachusetts and its improving transportation network bode well for the city''s ambitious economic revitalization effort, in spite of challenging local economic conditions. Reportedly over $2 billion of public and private projects are planned or underway, approximately half of which are taxable. The city''s $563 million CitySquare project is moving forward, and demolition of the existing facilities is expected to begin within six months. The August 2009 unemployment rate (10.8%) was above that of the commonwealth and nation and highlights ongoing employment base contraction. However, the presence of 10 higher education institutions and several health care institutions adds a degree of stability to the local economy. The city''s fiscal 2009 taxable assessed value (TAV) figure declined by a considerable 4.6%, which underscores the ongoing housing market correction; sizable commercial and residential investments had contributed to healthy 11% average annual TAV growth in fiscal years 2003-2008.

Debt ratios equal a moderate $2,385 per capita, or 3.4% of TAV. Fitch expects that debt levels will rise as the city continues to invest in its infrastructure but will remain manageable, given a cap on annual general fund-supported debt service - reduced to $15 million in fiscal 2010 - and above-average amortization rate. The city''s pension funded ratio fell to 68% as of Jan. 1, 2009, after suffering a large decrease in asset values during calendar 2008. Officials have proposed extending the amortization schedule to provide funding relief; the city intends to continue funding 100% of the annual required contribution. Several changes to health care benefits contributed to a significant decline in the city''s liability for other post-employment benefits, but a significant $1.1 billion liability remains.

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY''S PUBLIC WEBSITE ''WWW.FITCHRATINGS.COM''. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH''S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ''CODE OF CONDUCT'' SECTION OF THIS SITE.

Contacts:

Fitch Ratings, New York
Ryan A. Greene, 212-908-0315
Ann Flynn, 212-908-9152
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com