Fitch Rates $158.4MM New Jersey Econ Dev Auth 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' underlying rating to the New Jersey Economic Development Authority's $78.150 million business employment incentive program bonds, 2005 series A (federally taxable) and $80.240 million 2005 series B (federally taxable). The bonds will be offered through a syndicate led by Morgan Stanley the week of Oct. 17. Both series of bonds are due Nov. 1, 2015 with other details to be determined. Fitch affirms the 'A+' rating on the authority's outstanding $138.3 million parity business employment incentive program bonds

Payment for the taxable bonds derives from direct state general fund appropriations pursuant to a contract entered into by the authority with the state treasurer. The payments are equal to debt service. Bond proceeds will provide economic incentive grants to companies that locate or expand in New Jersey. The business employment incentive program (BEIP) bonds are in conjunction with the state's companion economic development grant program for designated industries (DIEP). Eligibility for the program depends on job creation as measured by additional gross income tax revenues. BEIP grants provided up to 80% of such revenues, with the designated industries debt service limited to the remaining 20% portion. Amortization of the BEIP debt had been relatively short, 2009 for the series 2003 bonds. However, subsequent issues have lengthened the final maturity to 2015. The series 2004B bonds were the first under the $214 million swap agreement with three providers to cover bonds to be sold between Nov. 1, 2004-2006. The Nov. 1, 2005 swap is being terminated and approximately $2.7 million of series 2005A bond proceeds will fund the termination payment.

While increases in gross income tax revenues resulting from employment expansion under the incentive program is intended to exceed both programs costs, debt service on the bonds are not dependent on additional revenues being generated. Nonetheless, the state is bonding what was previously a cash funded program, and as such, its debt service obligation for over $375 million of authorized BEIP and DIEP bonds will continue even if the economic benefits do not.

Annual debt service payment relies solely on the state annual contract payments payable from the state's general fund, subject to annual legislative appropriations. Accordingly, the rating reflects the general creditworthiness of the state. The state's general obligation bonds are rated 'AA-', reflecting actions taken to transition from budgets dependent on borrowing, including halting rapid spending growth, which, combined with improved revenue performance, has stabilized the state's finances and reduced the structural imbalance. While lessened, the use of nonrecurring resources remains large.

The strength of the New Jersey economy provides the state with an underlying ability to absorb challenges, including capital funding pressures for transportation and school construction, which have elevated debt to high levels. Continuing demands remain to relieve high local property taxes. Projected increases in pension requirements next year will contribute to budget pressures, although the systems remain relatively well funded, at 87.2% as of June 30, 2004. Net tax-supported debt is equal to $27.5 billion after this sale and another sale next week. Debt levels are high at 7.6% of personal income, declining to 6.9% of personal income, excluding pension bonds. The fiscal 2005 projected ending balance is estimated at $644 million after funding of tax rebates. The adopted fiscal 2006 budget alters recent trends, reducing spending growth to just 1.5% adjusted for interyear transactions. By contrast, the base growth for the three major taxes is reasonably estimated to increase by 6%. The projected fiscal 2006 ending balance is $600 million.

The scope of the state's employment base is broad with employment minimally affected in the recent downturn. Employment rose 0.6% in 2004, albeit slower than the 1.1% gain for the U.S. August 2005 employment rose 1.2% from one year ago. The state's wealth levels are high, ranking third by measure of per capita personal income. Personal income growth is beginning to improve with second quarter 2005 personal income up 6.3% from second-quarter 2004, the same as the national rate of gain.

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