Fitch Rates Greater Cleveland Regional Transit Auth, Ohio's $28MM Rfdg GOs 'A'

CHICAGO--(Business Wire)--
Fitch assigns an 'A' rating to the Greater Cleveland Regional
Transit Authority (GCRTA, or the authority), Ohio's approximately $28
million of general obligation (GO), limited tax capital improvement
refunding bonds, series 2008B. The bonds are scheduled for negotiated
sale on or about September 11, and are secured by the authority's full
faith and credit pledge within the ten-mill limitation imposed by
state statute. However, the authority intends to pay principal and
interest from sources other than a property tax, primarily GCRTA's 1%
sales and use tax. Proceeds will refinance outstanding GO bonds for
debt service savings. The rating Outlook is Stable.

Fitch also affirms the 'A' rating on approximately $182 million of
outstanding GO debt.

The 'A' rating reflects the broad sales tax base of Cuyahoga
County, and the solid gains in ridership over the past five years. The
rating is also based on a challenging operating environment, as a
weakening service area, low levels of state financial support, and a
heavy dependence on a potentially volatile sales and use tax with low
farebox recovery continue to pressure fiscal stability. Reduced
consumer spending may pose a risk to sales and use tax projections
even given a small budgeted decline in 2008, but increased fares
somewhat offset this risk. Fitch expects the authority to continue to
manage the widening gap between operating revenue and expenses through
increased consolidations, efficiencies, external funding sources, and
fare adjustments, if necessary.

Although the bonds carry the authority's GO pledge, a property tax
levy is not currently collected, as other revenues are sufficient to
pay debt service. In addition, Fitch places limited weight on this
pledge, as the overall property tax rate is limited to 10 mills, and a
levy for GCRTA would necessitate a reduction to other taxing entities
in the county. GCRTA's budgeting procedures and county oversight
ensure timely collection of the levy if projected revenues are
insufficient, but current revenues cover debt service over ten times
on a gross basis. Pursuant to the sales and use tax collection
agreement, the Ohio Department of Taxation directly deposits monthly
sales and use tax revenues with the bond retirement fund held by the
trustee for bondholders, with the remaining revenues transferred to
the authority for its operating and capital needs.

Revenues from the dedicated 1% sales and use tax have grown by an
annual average of 1.3% since 2004, and provided 77% of total authority
revenues in 2007, with passenger fares contributing 19%. In 2008 and
2009, the authority expects sales tax performance to decrease by
approximately 2% and 1%, respectively, reflecting a continued trend of
slow economic growth in the region. However, current data available
illustrates sales and use tax collection from January through July
2008 is up approximately 4% from the same corresponding timeframe in
2007.

In 2006, the authority adopted a two-step rate adjustment which
marked the first fare increase in 13 years. In 2006 fares were raised
on local service and express and rail services, and as planned the
second fare increase was implemented in the earlier part of 2008. In
addition, pending board approval the authority plans to implement a
25-cent fuel surcharge on its bus services. Originally seeking a
50-cent increase, the authority received a one- time state grant
contingent on maintaining service, which will enable a smaller rate
increase. While recognizing it is not recurring, Fitch views this
state contribution positively, as it indicates state support for the
authority. In addition, the authority obtained Congestion Mitigation
and Air Quality Program funding, which combined with the state grant
and cost-containment strategies contributed an estimated $2.7 million
increase to fund balances 2008.

System ridership grew at an average 1.7% annually from 2004 to
2006, spurred by reduced incomes and rising gas prices; however,
ridership since then has been essentially flat, growing by .3% and .1%
in 2007 and 2006, respectively. The authority forecasts 2008 ridership
will increase 2%, with January through July 2008 up .7% from the same
corresponding timeframe in 2007.

The authority's capital improvement plan (CIP) equals about $433
million over the next five years. The largest project in the plan is
the Euclid Corridor bus line, connecting Cleveland's central business
district to major health care institutions on the east side of the
city. With the bulk of construction complete, about one-third of the
remaining projects in the plan are related to rail expansion and
rehabilitation, with the balance dedicated to vehicle replacement,
improvements to transit shelters, fare collection system upgrades, and
other projects. Fitch notes that while the authority has flexibility
to delay investment if financial margins are overly stressed, delaying
investment might result in greater deferred maintenance and increased
equipment failure rates, albeit still manageable.

GCRTA is an independent political subdivision of the state of
Ohio, created in 1974. The authority provides all public transit
services within Cuyahoga County, including rail rapid transit, light
rail, fixed route, community circulator, and paratransit. Cuyahoga
County is the largest county in Ohio in terms of population and
economic activity with the highest per capita incomes in the state,
equal to 116% of the state average and 108% of the U.S. average. The
area's economy has diversified as the health care industry has grown,
but county unemployment rose substantially in the past year due to
continued losses in durable manufacturing and exposure to the
automotive industry's restructuring. The county's May 2008
unemployment rate increased to 8.1%, from 6.2% in May 2007, and
remains well above national figures.

Fitch issued an exposure draft on July 31, 2008 proposing a
recalibration of tax-supported and water/sewer revenue bond ratings
which, if adopted, may result in an upward revision of this underlying
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
Melanie A.J. Shaker, 312-368-3143, Chicago
Vanessa E. Roy, 212-908-0508, New York
or
Media Relations:
Cindy Stoller, 212-908-0526, New York

Copyright Business Wire 2008