Correction: Fitch Rates California $782MM GOs 'A-'.

NEW YORK -- (This is an amended version of a press release issued late yesterday and contains revised information in the headline and first paragraph, namely the listing of the new bond rating as 'A-', not 'AA-'.)

Fitch Ratings assigns an 'A-' rating to California's $782 million various purpose general obligation bonds for bids on Dec. 1 and affirms the following ratings:

-- $33.9 billion general obligation bonds at 'A-';

-- $1.3 billion general obligation veterans bonds at 'A';

-- $10.9 billion general obligation economic recovery notes at 'A+'.

The new bonds mature serially June 1, 2005-2034 and are callable on or after Dec. 1, 2014 at par.

The ratings reflect the state's financial improvement from elimination of potential crisis through the successful issuance of deficit funding bonds, set against a backdrop of improving economic indicators and revenues now exceeding estimates. Future evaluations will continue to monitor not only the economy but also expenditure control and policies directed toward achievement of structural balance.

California's economy has stabilized, and employment has begun to grow at rates nearing 1% annually. Employment fell 1.3% between 2001, the prerecession peak, and 2003 but in October 2004, compared with the same month the previous year, it was up 0.9%. All major sectors except government have been registering gains, with the strongest showings in the sensitive areas of construction and business and professional services. Personal income growth in 2003 was about equal to that of the nation and the second quarter 2004 increase of 5.7% was about 110% of the U.S. increase. Expectations for the year of increases of 0.8% in employment and 5.4% in personal income are comparable with recent experience.

The budget for 2004-2005 projects a general fund balance at the June 30 close of $1.7 billion, down from $3.1 billion at the end of 2003-2004. Only around $600 million, or less than 1% of revenues, is classified as unreserved and undesignated. The actual operating deficit is around $3.4 billion, when use of $2 billion of deficit bond proceeds is considered. In addition, the plan includes about $1 billion in pension obligations and over $2 billion from transportation fund loans and diversion of local revenue. The state will be challenged to close this gap and keep expenditures, budgeted at $1.1 billion over the May revision recommendation, under control.

For the first four months of the fiscal year revenue collections were $1.08 billion, or 4.9%, above projections, with the bulk of the overage attributable to corporation taxes and to a lesser extent personal income taxes, which were 2.6% ahead of forecast. The legislative analyst projects revenues to be $2 billion over the budget forecast this year but expenditures also are estimated to increase; a $6.7 billion imbalance between revenues and expenditures is projected for next year. The voters rejected two tribal gaming propositions on Nov. 2; this was a prerequisite for receipt of budgeted revenues related to tribal compact negotiations and bonding of payments made by certain tribes.

After this sale, net tax-supported debt will amount to approximately $54 billion, just under $1,600 per capita, and 4.6% of personal income. While these ratios are moderate, they are well above previous levels. Authorized but unissued general obligation bonds as of Oct. 1, 2004 totaled $33 billion. On Nov. 2, voters approved $3 billion in bonds for stem cell research and $750 million of bonds for children's hospitals, both general obligations of the state.