Fitch Rates $140MM Ohio GO Highway Capital Improvement Bonds 'AA+'

NEW YORK--(Business Wire)--
Fitch Ratings assigns an 'AA+' rating to $140 million State of
Ohio general obligation (GO) highway capital improvements bonds,
series L (full faith and credit/highway user receipts). The bonds are
expected to sell via negotiation on or about April 21. The bonds will
mature on May 1, 2009-2018, and are not subject to prior redemption.
Fitch also affirms the 'AA+' rating on approximately $7.2 billion of
outstanding GO bonds of the state. The Rating Outlook is Stable.

The GO highway bonds are rated 'AA+' in recognition of the credit
characteristics of the state and the bonds themselves. In addition to
carrying the state's full faith and credit pledge, the state pledges
highway user receipts, which are constitutionally dedicated to highway
purposes. Receipts, predominantly motor fuel taxes, have been stable
in most years, but have grown since a phased-in increase in the fuel
tax to 28 cents through fiscal 2006. Pledged highway receipts cover
debt service on outstanding bonds, including those now offered, by
12.51 times (x) in fiscal 2008. Including projected issuance through
2013, coverage falls to a minimum of 14.53x. As with previous highway
GO issues, the bonds now offered mature in 10 years.

The current issue is the twelfth under a voter-approved, 1995
constitutional program to fund transportation improvements. Issuance
is limited to $220 million per year, plus any previously unused
authorization; no more than $1.2 billion of such bonds may be
outstanding. Ohio's transportation program anticipates continued
annual issuances well below the $220 million yearly limit through
2013, with additional new construction funded from state and federal
receipts. In addition to the highway GO bonds, $65 million in
outstanding appropriation bonds for highway-related facilities are
supported by pledged highway user receipts.

Ohio's 'AA+' GO rating reflects its careful financial management,
a demonstrated record of maintaining fiscal balance, and a moderate,
rapidly amortizing debt burden. The state's economic situation is
challenged, with the long-term erosion of manufacturing exacerbated by
a housing market downturn and the weakening national economy, leading
to very weak employment growth and clouding the state's near-term
economic outlook. In response, the state has lowered its revenue
forecast for the fiscal 2008-2009 biennium, largely in the fiscal 2009
forecast, and is proposing spending cuts and other measures to
maintain budgetary balance. Actual revenues for the fiscal year to
date have been only slightly below estimate. Further forecast gaps may
require tapping the rainy day fund balance of $1 billion, or 3.9% of
prior-year revenues.

Debt management is conservative. Tax-supported debt of $10.9
billion equals 2.7% of personal income; 67% of debt amortizes in ten
years, a high level. About 65% of tax-supported issues are GO bonds.
The state has proposed issuance of $1.7 billion in new bonds, largely
GO, for economic development targeted at job stimulus; GO bonds
require voter approval. Ohio's largest pension system is well-funded,
at 93% in 2006.

Ohio's economic performance remains weak, with persistent declines
in manufacturing now joined by decelerating service sector employment
and a continued deep housing market downturn. Since the last
recession, employment growth had been limited, rising 0.5% from 2004
and 2007, compared to U.S. growth of 5.9% over the same period. Total
employment in 2007 fell 0.2% year-over-year, compared to a 1.1%
increase nationwide. February employment is up 0.1% year-over-year,
although manufacturing continues to be a drag on overall growth; it
dropped 1.8% in February year-over-year. Personal income, though
growing, continues to underperform comparable national figures:
personal income rose 4.7% in Ohio in 2007 vs. 6.2% nationally, and
fourth-quarter 2007 personal income rose 4.7%, vs. 5.9% nationally.

The state 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
February are 1.2% below estimate; personal income tax collections are
2.1% below estimate, while non-auto sales tax collections are 1.5%
above.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, 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.

Fitch Ratings, New York
Douglas Offerman, 212-908-0889
Richard J. Raphael, 212-908-0506
or
Media Relations:
Cindy Stoller, 212-908-0526

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