Fitch Rates Ohio Building Authority $125MM Bonds 'AA'

Business Wire, Feb 22, 2008

NEW YORK -- Fitch Ratings assigns an 'AA' rating to approximately $124.6 million Ohio Building Authority state facilities bonds and state facilities refunding bonds, consisting of:

--$50,000,000 State of Ohio (Ohio Building Authority) state facilities bonds (administrative building fund projects), 2008 series A;

--$24,620,000 State of Ohio (Ohio Building Authority) state facilities refunding bonds (administrative building fund projects), 2008 series B;

--$50,000,000 State of Ohio (Ohio Building Authority) state facilities bonds (adult correctional building fund projects), 2008 series A.

The bonds are expected to sell via negotiation on or about Feb. 27. Series 2008A (administrative building fund projects) and series 2008A (adult correctional building fund project) bonds mature April 1, 2009-2023. Refunding series 2008B (administrative building fund projects) bonds mature April 1, 2010-2019. Early redemption provisions have not been determined. Fitch also affirms the 'AA' rating on approximately $2.5 billion outstanding appropriation bonds of the state and certain agencies. The Rating Outlook is Stable.

The bonds now offered are secured by rental payments that are appropriated biennially under separate leases with the department of administrative services and the department of rehabilitation and corrections. The debt is authorized by Ohio's constitution and secured by the state's pledge of legislative appropriation, with the leases renewable biennially until bonds are repaid. The building authority is required to submit prior to the start of each fiscal year an estimate of debt service to both departments and to the director of budget and management, and debt service must be included in the budget. The trustee does not have the ability to take possession of or operate the leased projects.

The rating also reflects Ohio's 'AA ' underlying general obligation rating, based on its careful financial management, a demonstrated record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Ohio manages its debt conservatively and has a moderate burden; excluding the current bonds, tax-supported debt equals 2.8% of 2006 personal income. Ohio's tax-supported debt amortizes rapidly, 67% in 10 years. Excluding the new bonds, Ohio has approximately $2.6 billion in outstanding lease appropriation debt payable from general revenue funds, 24% of total tax-supported debt.

Ohio's economic performance has weakened, with a persistent decline in manufacturing now joined by decelerating employment in services and a continued deep housing market downturn. Since the last recession, employment growth had been limited, rising 0.8% from 2004 and 2006, compared to U.S. growth of 4.8% over the same period. Total employment in 2007 is falling, with December 2007 down 0.3% year-over-year, compared to a 0.9% increase nationwide. Manufacturing fell 1.7% in December 2007 year-over-year, with larger declines in primary metals and transportation equipment. Nonetheless, manufacturing continues to employ 14.2% of Ohio residents, compared to 10.4% nationally. Services sector growth has slowed, with trade, transportation and utilities down 0.4% and financial activities down 1.2% in December. Services gains are confined to professional and business services, up 0.4%, and education and health, up 1.4%. Personal income, though growing, continues to underperform comparable national figures: personal income rose 4.4% in Ohio in 2006, vs. 6.6% nationally, and third quarter 2007 personal income rose 4.9%, vs. 6.5% nationally.

Ohio has a careful approach to financial operations and a history of taking decisive action to address potential imbalance. The governor's powers include making unilateral spending reductions during the biennium to maintain fiscal balance. The fiscal 2008-2009 biennial budget, passed in June, foresaw budgetary balance through the biennium despite limited revenue growth, which was constrained by the phase-in of tax cuts and the slow economy. However, a downward economic forecast revision, softening year-to-date tax receipts and rising Medicaid forecasts have prompted the state to lower its fund balance projections and take corrective actions to maintain balance through the biennium. Tax revenues, originally forecast to grow 1% in fiscal 2008 and fall 0.5% in fiscal 2009, are now expected to rise only 0.3% in fiscal 2008 and fall 1.5% in 2009. The projected fiscal 2009 ending fund balance, absent corrective action, has declined $733 million, to negative $596 million. To address the problem, the state has proposed a package of spending cuts, lapses and other measures totaling $783 million through the biennium; most of the spending cuts require only administrative action under the governor's broad powers to maintain budget balance. The revised plan foresees fiscal 2009 ending with a $187 million balance, equal to 0.6% of revenues. The budget stabilization fund balance is $1 billion, or 3.9% of revenues; the state does not expect to rely on the fund to maintain balance, barring further downward forecast revisions. Actual tax revenues through January are 0.8% below the original estimate; personal income tax collections are 1.3% below estimate, while non-auto sales tax collections are 1.8% above.