Fitch Rates Ohio Building Authority $120MM Bonds 'AA'

Business Wire, March 15, 2005

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $119.9 million Ohio Building Authority state facilities bonds and state facilities refunding bonds, listed below. The bonds are expected to sell through negotiation on March 16 with a syndicate led by Lehman Brothers. Fitch also affirms the 'AA' rating of $3.5 billion outstanding appropriation bonds of the state and certain agencies.

The 'AA' rating on bonds backed by Ohio's lease appropriations reflects the state's general credit standing, sound lease structures, the broad state purposes of financed projects, and constitutional authorization for these types of bonds. For these issues, bonds are secured by rental payments that are appropriated biennially under leases with the departments of administrative services and public safety. Trustees do not have the ability to take possession of or operate the leased projects.

Ohio's 'AA ' general obligation bond rating reflects its track record of conservative financial management, moderate and rapidly amortized debt burden, and broad economy. From 2001-2003, a severe loss of manufacturing employment depressed state revenues and required repeated actions to trim spending, as well as a temporary $0.01 sales tax increase that expires in June 2005. The state took the actions promptly, while maintaining significantly reduced, modest reserves of just over 1% of revenues. The economy now is recovering, as policy makers consider the 2005-2007 biennial budget. Achievable, balanced budgetary decisions, longer term effects of enacted tax reforms, and economic trends will be important considerations in future rating actions.

New employment data shows that a slow, but steadily strengthening recovery began in early 2004. Improving state revenue performance throughout 2004 matched the corrected jobs data, which previously had shown job losses throughout the year on a not seasonally adjusted basis. In 2004 nonfarm employment grew 0.2%. The number of jobs in 2004 remained 3.9%, or about 218,000, below the state's 2000 peak. Personal income growth for the year ending in the third quarter of 2004 was just below the U.S. average.

The pace of economic growth strengthened modestly through the course of 2004. January 2005 employment is 0.7% above that of January 2004. Jobs in the manufacturing sector, so important to the state's economy, declined 2.2% on an average monthly basis in 2004. Recently, however, manufacturing has shown signs of recovery. Manufacturing jobs in January 2005 number 0.5% more than one year prior; transportation equipment manufacturing, including motor vehicles and parts employment, is up 1.5% after five years of decline.

Through February state general revenues for fiscal 2005 are up 4.8% from the same period of the prior fiscal year, including 5.9% in total sales and use taxes, 8.8% in personal income taxes, and 6.3% growth in all tax revenues. This is 0.8% above the revenue estimate. Spending for the fiscal year to date is 0.8% below the estimate.

The governor's proposed biennial budget for fiscal years 2006 and 2007 grows general revenue fund spending at the slowest rate in 40 years and includes significant tax cuts to escalate over time. To stimulate growth, the governor proposes lowering certain broad-based taxes, including income taxes, half of the current temporary sales tax, and certain business taxes. The 21% income tax reductions would be phased in over five years, increasing over time. The base of other state levies would be broadened, and cigarette, tobacco product, and alcoholic beverage taxes would be increased.

Health and human services spending, including state and federal Medicaid sources equaling 47% of general revenue spending, grows just 1% in the governor's budget in fiscal 2006, down from 7% in fiscal 2005 due to a broad array of new, proposed cuts in addition to those already implemented. Primary and secondary education, 27% of spending, grows about 2.5% annually. Local government distributions also see reductions. The rate of underlying growth assumed for the income and sales tax bases appears reasonable, as it assumes lower growth than that recently experienced during the state's slow economic recovery.

Debt remains moderate. After issuance of this month's bonds, tax-supported debt will equal approximately 2.9% of personal income, or $886 per capita. General revenue fund supported debt amortizes rapidly, with about two-thirds scheduled for retirement within 10 years. Debt service consumed 4.1% of general revenue fund and lottery revenues in fiscal 2004.

The 'AA' rating is assigned to the following new issues, some for refunding purposes, subject to market conditions:

-- $75,000,000 Ohio Building Authority state facilities bonds (administrative building fund projects), 2005 series A;

-- $29,185,000 Ohio Building Authority state facilities refunding bonds (administrative building fund projects), 2005 series B;

-- $5,000,000 Ohio Building Authority state facilities bonds (highway safety building fund projects), 2005 series A;