Fitch Rates Ohio Building Authority $75MM Correctional Bonds 'AA'

Business Wire, May 16, 2005

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $75.0 million Ohio Building Authority state facilities bonds (adult correctional building fund projects), 2005 series A. Fitch also affirms the 'AA' rating of $3.5 billion of outstanding appropriation bonds of the state and certain agencies. The bonds will sell through negotiation on May 19 with a syndicate led by Goldman, Sachs & Co.

The 'AA' rating on certain 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 the 2005 series A debt, bonds are secured by rental payments that are appropriated biennially under leases with the department of rehabilitation and correction. Trustees may not take possession of or operate leased projects, which, in this case, include new prison construction and local jails, among others.

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 jobs depressed state revenues and required repeated actions to trim spending, as well as a temporary sales tax increase that expires in June 2005. The state took the actions promptly and maintained significantly reduced reserves of just over 1% of revenues.

The economy now is recovering as policymakers consider the 2005-2007 biennial budget, but the recovery remains quite tepid. Achievable, balanced budgetary decisions, longer term effects of any enacted tax reforms, and economic trends will be important considerations in future rating actions.

Updated employment data have shown that a slow recovery began in early 2004. Improving state revenue performance throughout 2004 matched updated jobs data, which showed some steady strengthening in economic performance. In 2004, nonfarm employment grew 0.2%, but the number of jobs in 2004 remained 3.9%, or about 218,000, below the state's 2000 peak. March 2005 employment was just 0.4%, above that of March 2004. Income growth remains slower than that of the U.S. Manufacturing employment has stabilized, but performance in the trade, financial services, and government sectors remains weak, as does the economic performance of some of northern Ohio's major metropolitan regions.

Through April, state general revenues for fiscal 2005 are up 4.9% from the same period of fiscal 2004, including 4.3% in total sales and use taxes, 7.3% in personal income taxes, and 5.7% in all tax revenues. Total sources are 0.7% above the revenue estimate. Spending for the fiscal year to date is 0.4% below the estimate.

Budgetary decisions will be important in future rating actions. The governor's proposed biennial budget for fiscal years 2006 and 2007 grew general revenue spending at the lowest rate in 40 years, including significant Medicaid cuts, and includes large tax cuts. To stimulate growth, the governor proposed lowering certain broad-based taxes, including income taxes, half of the current temporary sales tax, and certain business taxes. Income tax reductions of 21% would be phased in over five years, increasing over time. The base of other state levies would be broadened.