Fitch Rates Florida's $200MM PECO 2008A Bonds 'AA+'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has assigned an 'AA+' rating to Florida's (the
state) approximately $200 million full faith and credit state board of
education public education capital outlay (PECO) bonds, 2008 series A.
The bonds are expected for bids on 18 hours notice, as early as
September 9. In addition, Fitch has affirmed the rating on
approximately $13.2 billion outstanding Florida full faith and credit
bonds at 'AA+'. The Rating Outlook is Stable.

Florida's 'AA+' debt rating and Stable Outlook are based on a
moderate debt burden, sound financial management practices, fully
funded pension systems, and a broad service-based economy. Economic
contraction has begun reflective of the state's severe housing market
correction. The weakened economy has led to precipitous revenue
losses, resulting in austere budgetary measures taken by the
legislature to balance the past and current fiscal year. A recent and
challenging deterioration in the state's revenue estimates could
result in at least partial use of the state's reserve funds in
combination with further budget corrective action. Fitch believes the
state's reserves, including various trust funds, which were built-up
during the earlier economic expansion provide satisfactory cushion for
the current shortfall, although the uncertain depth and length of the
real estate led downturn remains a significant concern.

The state's revenue sources - primarily a sales tax, but also a
documentary stamp tax (in large part based on real estate
transactions) - are vulnerable to declines in the rates of population
growth and consumption and have proven especially susceptible to the
decline in housing market activity. Following revenue surges over
several fiscal years, Florida accumulated large surpluses and reserves
that were used judiciously. While the sizable general fund balances
have been substantially depleted, the state has taken corrective
action and closed fiscal 2008 with combined general and reserve fund
balances approximating $1.7 billion or 6.9% of revenues - consisting
largely of the fully funded $1.35 billion reserve fund.

The fiscal 2009 budget reduces all funds and general fund spending
by 5.8% and 7.5%, respectively, from fiscal 2008 levels, with primary
and secondary education funding receiving a sizable reduction. The
budget currently maintains a fully funded general reserve fund and
leaves largely untapped the various state trust fund balances that
have accumulated nearly $3 billion, including a tobacco reserve
account. An August state revenue conference significantly reduced
revenue expectations in both the current and the next fiscal years,
including $1.8 billion in fiscal 2009, in recognition of protracted
economic distress. For fiscal 2009, the governor has recommended using
half of the general reserve fund in combination with spending cuts and
trust fund balances. It is anticipated the state will consider these
recommendations, among other balancing actions, following the November
2008 revenue estimating conference. While the state's general fund is
estimated to decline in fiscal 2009, the assumed moderation of the
decline and recovery in fiscal 2010 places risk to the forecast given
current economic trends.

As the fourth most populous U.S. state and one of the fastest
growing this decade, Florida boasts a broad service-based economy.
Service industries, trade, and construction have an above-average
presence in the economy. The state experienced an abrupt slowdown in
total employment growth in 2007, rising only 0.5% from 2006. Most
recently Florida experienced job loss as state employment dropped 1%
in July 2008 from July 2007 levels, compared to 0.1% national
employment loss. Year-over-year construction employment was down
nearly 13% in July 2008. Growth has continued in two of the state's
important sectors, with the educational and health services, and
leisure and hospitality sectors up 3.6% and 2.1%, respectively, over
the same period.

Debt represents a moderate burden on Florida's resources, as the
state targets debt service levels equal to 6% of revenues. As of March
1, 2008, net tax-supported debt approximated $20.1 billion or a
moderate 2.9% of estimated 2007 personal income. Debt is two-thirds
full faith and credit general obligations.

PECO bonds are the state's primary method to fund school
construction. A second lien on utility gross receipt taxes and
Florida's full faith and credit secure the PECO bonds now being
issued. A closed first lien accounts for less than 1% of debt service.
Pledged tax revenues in fiscal 2008 of $1.1 billion rose 5.5% from the
prior year and cover estimated maximum annual debt service (MADS) of
both PECO liens by 1.28 times (x). Fiscal 2009 collections are
projected to increase 3.6% from fiscal 2008.

The 2008 series A bonds are issued to fund new school construction
projects and are on parity with $10.4 billion outstanding PECO bonds.
Issuance of parity bonds requires 1.11x MADS coverage based on average
receipts during the past 24 months.

The bonds are scheduled to mature June 1, 2009-2038 and callable
beginning June 1, 2018 at 101%.

Note: Fitch issued an exposure draft on July 31 proposing a
recalibration of tax-supported and water/sewer revenue bond ratings
which, if adopted, may result in an upward revision of this rating
(see Fitch research 'Exposure Draft: Reassessment of the Municipal
Ratings Framework').

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
Kyle R. Gephart, +1-212-908-0661
Richard J. Raphael, +1-212-908-0506
Cindy Stoller, +1-212-908-0526 (Media Relations)

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