In the course of routine surveillance, Fitch Ratings has affirmed the ''A-'' rating on Little Salt Intercounty Drainage District, Michigan''s approximately $1.1 million outstanding drainage bonds. The Rating Outlook is Stable.

The ''A-'' rating and Stable Outlook reflect the satisfactory security provisions, which include special assessment revenues and a limited tax pledge of the underlying counties served by the district. The rating further reflects the several nature of the agreement, where each county is only responsible for its share of the project, depends on each county''s ability to generate sufficient special assessment revenue to support its share of debt service payments as well as maintaining overall financial flexibility amidst downward economic budgetary pressures. The rating also considers the district''s diverse economy, moderate debt burden and limited capital needs of the underlying counties.

The bonds are primarily secured by special assessments levied on property and public entities within the district. The district is approximately 60 miles north of East Lansing (rated ''AA+'' by Fitch) and includes portions of Midland, Gratiot, and Isabella County. While the district has no taxing authority, drainage commissioners of the underlying counties are authorized to levy a special assessment sufficient to pay their share of debt service. Obligations of each county are in proportion to location of the district within each county with Midland at 42.5%, Gratiot at 38% and Isabella County at 19.5%. The bonds are also secured by ad valorem taxes on all taxable property in the county subject to applicable constitutional and statutory tax rate limitations in proportion to each county''s special assessment.

Financial positions of the underlying counties remain favorable; although Midland''s financial position has deteriorated with reserves decreasing to 12% of spending ($3.2 million) in fiscal 2008 from 22.8% ($5.9 million) in fiscal 2006 due to a settlement from Midland Cogeneration Venture tax appeal. Fiscal 2008 unreserved fund balance for Isabella equaled $6.3 million unreserved fund balance or 43.8% general fund spending, and Gratiot''s equaled $1.1 million or 17.7% of spending. All counties expect reserves to remain favorable through fiscal 2010.

The district benefits from a diverse economy across the three-county region, but there has been economic deterioration in Midland and Gratiot due to exposure to the manufacturing sector. Major employers range from Midland''s Dow Chemical (5,800) and Mid-Michigan Medical Center (3,200) to Isabella''s Soaring Eagle Hotel and Casino (3,030). Gratiot''s unemployment is the highest in the district and increased to 14.2% in August 2009 from 9.7% the year prior, in line with statewide trends while Midland compares more favorably (10.1%). Dislocation in Isabella County has been milder reflecting concentration in government, retail, and healthcare with unemployment increasing to 8.5% from 6.2% during the same time period. State and national unemployment for August 2009 equaled 14.7% and 9.6% respectively.

The aggregate overall debt burden for the three counties is modest equaling 1.75% of market value or $1,512 per capita. The district itself has no other outstanding debt, and the capital needs of the underlying counties are manageable.

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