Fitch Downgrades State of Ohio GOs to 'AA'; Outlook Revised to Stable

NEW YORK--(Business Wire)--
Fitch Ratings downgrades the rating of $7.0 billion outstanding State of Ohio
general obligation (GO) bonds to 'AA' from 'AA+.' Fitch Ratings assigns 'AA'
ratings on $10.0 million State of Ohio coal development general obligation (GO)
bonds, series J and $30.0 million series K. The bonds are expected to sell via
negotiation the week of June 15, 2009 and are not subject to early redemption.
Fitch also downgrades to 'AA-' from 'AA' ratings on the state
appropriation-backed bonds. The Rating Outlook is revised from Negative to
Stable.

The downgrade reflects the long-term deterioration in the state's economy; in
particular, the structural decline of the state's large manufacturing sector and
the resulting negative impact on state financial operations. The state's economy
has been undergoing a transition away from manufacturing for many years.
Manufacturing employment, once the strength of the Ohio economy, has declined
38% over the past 10 years, with almost 400,000 manufacturing jobs lost during
that period. In the current recession the pace of losses has increased; over
100,000 manufacturing jobs have been lost in the past year. The prominence of
auto assembly plants and associated parts manufacturers is a particular concern;
with General Motors' (GM) recent bankruptcy filing, closures throughout the
Midwest have been announced, including plants and parts distribution facilities
in Ohio. Ohio has lost over 25,000 automobile related manufacturing jobs in the
past year, primarily in parts manufacturing.

Ohio's recovery from the recession earlier this decade was weaker than that of
the nation as a whole, with employment never reaching its previous level.
Following the last recession, employment increased a total of just 0.3% from
2004 to 2007, compared to U.S. growth of 4.7% over the same period. Declines in
manufacturing have been joined by slowing service sector employment and a
continued deep housing market downturn. April 2009 employment is down 4.8%
year-over-year, compared to a 3.8% decline for the U.S. overall. Personal income
gains have been limited in Ohio in this decade; growth has been approximately
60% of national growth and per capita income growth has been slightly better at
75% of the national rate.

The state's financial management is sound and the rating incorporates the
expectation that even with revenue declines the state will balance the budget.
Over the course of the fiscal 2008 - 2009 biennium, the state has grappled with
revenue shortfalls totaling approximately $2.8 billion, which has prompted
spending cuts and other measures to maintain fiscal balance. As the state's
constitution precludes ending a fiscal year in deficit, the state has taken
significant action to date to balance the budget, including spending reductions
of 4.75% and then 5.75% across state agencies. It also has reduced general
revenue fund Medicaid spending, made fund transfers and recorded appropriations
lapses, and assumed enhanced federal Medicaid matching funds (FMAP).

Although the state has closed the gap without reliance on its budget
stabilization fund thus far, given the remaining funding gap of approximately
$900 million and the rapidly closing fiscal year, the state is likely to draw
substantially on the budget stabilization fund in order to close the fiscal year
in a balanced position. The budget stabilization fund balance was just over $1
billion at the start of the current fiscal year, equal to 3.8% of prior-year
revenues.

To date in the legislative process, the state House and Senate have each
produced their own version of the biennial budget for fiscal years 2010 and 2011
and will finalize the budget in a conference committee in the coming weeks. The
conference committee will have available a revised revenue forecast, reportedly
based on conservative assumptions, and will have to address not only reduced
revenues but the limited availability of reserves to address that revenue
shortfall.

State debt management is conservative. All GO bonds are constitutionally
authorized by voters, and debt service for most GO issues is limited to 5% of
general fund and lottery revenues. Debt amortization over the next 10 years is
rapid and debt is fully retired in 20 years. Total tax-supported debt of $11.1
billion equals 2.8% of personal income; 69% of GO debt amortizes in 10 years, a
high level. Ohio's largest pension system is well-funded, at 96% in 2007. The
current offering continues a program of funding projects in research and
development of technology to make use of Ohio coal.

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
Karen Krop, +1-212-908-0661
Richard J. Raphael, +1-212-908-0506
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

Copyright Business Wire 2009