Fitch Rates Rhode Island $54MM Lease Participation Ctfs 'A+' Underlying; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings has assigned an underlying 'A+' rating to the State of Rhode
Island and Providence Plantations' $54 million lease participation certificates,
consisting of:

--$13.4 million 2009 series A (Information Technology Project);

--$11.365 million 2009 series B (Energy Conservation Project); and

--$28.81 million 2009 series C (School for the Deaf Project).

The certificates are expected by negotiation the week of June 15. In addition,
the underlying 'A+' rating is affirmed on the state's approximately $233 million
outstanding certificates of participation. The Rating Outlook is Negative.

The 'A+' rating is based on the credit quality of the state (general obligations
rated 'AA-' with a Negative Outlook by Fitch), as bonds are secured by lease
rental payments to be made by the state acting by and through its department of
administration, the state's central administrative, management and fiscal
agency. Such payments, dependent upon annual legislative appropriations, are
assigned to the trustee by a grantor trust for the benefit of the
certificate-holders. Lease payments, solely representing debt service, are made
separately for each project under subleases. The subleases are annually
renewable, although renewal is automatic upon appropriation.

The Negative Rating Outlook reflects Rhode Island's weak economy in the context
of an already severely strained financial position. Revenue and expenditure
estimates were revised substantially downward in November 2008, resulting in a
projected current-year gap of about 11% of expenditures even though fiscal 2009
spending was already below fiscal 2008 levels. In April 2009, the state
legislature resolved the fiscal 2009 gap, then estimated at $362 million, with a
supplemental budget that relied on federal stimulus monies ($200 million),
substantial cuts to local aid, and a $1 per pack cigarette tax increase.
However, the state revised its economic and revenue estimates in May 2009,
bringing fiscal 2009 revenues down by $70 million. The current fiscal 2009
projected gap of $73.5 million may result in a draw on the state's stabilization
fund, which is currently fully funded at $103 million. Rhode Island expects to
receive about $450 million in additional Medicaid funds through fiscal 2011 from
the federal stimulus package and about $165 million in direct education aid, in
addition to other assistance.

Following the May 2009 estimate revisions, which reduced projected revenue for
the coming year by $130 million, and before any corrective action, the fiscal
2010 gap is estimated at about $590 million. The governor's March 2009 executive
budget proposal, which relied on the November 2008 revenue estimate, included
widespread tax reform, significant federal monies, and additional cuts to local
aid. The legislature is still working on the fiscal 2010 budget.

Rhode Island's recent economic performance has been amongst the weakest of the
states. The state has had one of the most stressed real estate markets in the
country, fueled by subprime delinquencies, and has lost jobs every month since
August 2007. April 2009 employment was 4.4% below April 2008, compared to the
nation's loss of 3.8%, with declines in every sector. Unemployment in April 2009
stood at 11.1%, 125% of the U.S. rate. The pace of personal income growth also
has been below that of the nation for the last five years; 2008 personal income
per capita equals 103% of the U.S.

The state's revenue performance continues to be weak and revenue forecasts have
been reduced repeatedly and substantially, most recently in May 2009. Personal
income tax revenue is forecast to drop 12.7% baseline (i.e., adjusting for the
impact of tax policy changes, including the reimbursement of historic structures
tax credit claims) in fiscal 2009 and another 1.1% in fiscal 2010. Sales and use
taxes are projected down 2.8% baseline for fiscal 2009, following a 2.9% decline
in fiscal 2008, and are expected to drop another 1.2% in fiscal 2010. Overall,
tax revenue is forecast down 8.0% baseline in fiscal 2009 and another 0.8% in
fiscal 2010. The May 2009 forecast reflects the state's expectation that nonfarm
employment will be down 4.5% in calendar 2009 and another 0.7% in calendar 2010
and that state personal income will decline slightly in calendar 2009.

Rhode Island's debt ratios are above average but still in the moderate range.
Net tax-supported debt of about $2 billion at June 30, 2008 equaled about 4.6%
of personal income; subsequent issuance, including for transportation programs
in April 2009 and the current offering, will meaningfully increase this ratio as
of the end of the current fiscal year. Pension funding levels are low. The
governor has proposed pension reform and, with passage of the fiscal 2009
supplemental budget, the legislature indicated its intent to act on pension
reform in the near term.

The series A certificates will finance various state information technology
system upgrades; the state also issued certificates for this purpose in 2007,
and the current offering was planned at that time. The series B certificates
will fund energy conservation equipment and systems; the state also issued
certificates for this purpose in 2007, and the current offering was planned at
that time. The series C certificates fund construction of a new school for the
deaf in Providence, which will be owned by the Board of Regents for Elementary
and Secondary Education in trust for the state. The state's payment obligation
on all three series commences immediately, and is not contingent upon timely
project completion.

The series A certificates will be due April 1, 2010-2016; the series B
certificates will be due April 1, 2011-2021; and the series C certificates will
be due April 1, 2010-2029.

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
Laura Porter, 212-908-0575
Richard Raphael, 212-908-0506
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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