Fitch Affirms `AA+' Rating for New Hampshire's $47.9MM GOs.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 30, 2003

Fitch Ratings affirms the 'AA+' rating assigned in November 2002 to the state of New Hampshire's $47,860,000 general obligation refunding bonds, 2003 series A (delayed delivery) expected through negotiation with A.G. Edwards & Sons. This issue was originally scheduled for sale in November 2002 but was postponed. These bonds are now expected to be offered as early as Jan. 30. These non-callable bonds will be due July 15, 2004-2011 and will be dated the expected date of delivery which is expected to be April 17, 2003. The 'AA+' rating on approximately $610 million outstanding general obligation bonds is affirmed. This issue is intended to refund $48.14 million 1993 series bonds maturing 2004-11 for debt service savings.

New Hampshire's economic buoyancy and resilience, as well as its conservative debt and financial policies, underpin its credit standing. The national downturn has had a relatively mild economic impact on the state, but business taxes have significantly underperformed projections resulting in a deficit in the combined general and education funds. Reserves currently exceed the deficit but revenue performance and measures taken to maintain balance will determine credit direction.

In 1997 the state Supreme Court found the state to be responsible for providing adequate education. The initial plan was underfunded and the major revenue source, a statewide property tax, was valid only until Jan. 1, 2003. A new school funding plan was implemented last year that retained existing dedicated funding sources (including previous business tax increases) and provided for further increases in business taxes and other measures as well as higher general fund transfers to the Education Fund. The statewide property tax rate was reduced but the sunset was removed. Such measures would provide for largely balanced operations, however, the funding measures increased the state's reliance on less predictable revenue sources, particularly business taxes, at the same time that the assumption of education as a state responsibility has reduced spending side flexibility. This aspect of school funding remains vulnerability.

For fiscal 2002 revenues underperformed by approximately $44 million, and spending exceeded the budget by about $20 million, resulting in an unaudited $40 million deficit on June 30, 2002. The revenue shortfall was primarily due to lower than expected business tax collections. The recent widening of the fiscal 2003 projected deficit by some 10% to the now projected $77.4 million for the June 30, 2003 biennium close reflects continuing business tax weakness through the first half of the year. Total general and education fund revenues, excluding Medicaid enhancement revenues, were $10.4 million or 1.6% below expectations through the first half of the year. The state has twice slightly lowered estimates by about $7 million so far this year, and is also exposed to additional federal Medicaid assistance losses, which could also increase the revenue shortfall. The health care fund was reduced by $14.8 million which is still under appeal but an additional $24.6 million payment was reportedly deferred in the last quarter of 2002 due to a new challenge of the state's methodology. Existing state reserves still include $55 million in the stabilization fund and now $31 million in the health care fund, but use of the latter to offset a general fund deficit requires legislation.

New Hampshire has net tax-supported debt of $651.6 million, equal to $527 per capita and 1.5% of personal income, very moderate ratios. Commercial paper is used for bond anticipation purposes, and $50 million issued in December is outstanding. Strong personal income and employment growth continued through 2000, sharply slowing to the national average in 2001, but New Hampshire still ranks sixth in per capita personal income. The current economic downturn has been relatively mild with employment increasing 0.8% in 2001, but declining 0.2% in November 2002 as compared with November 2001.