Fitch Rates $185MM NYS EFC Income Tax Bonds 'AA-'.

NEW YORK -- Fitch assigns an 'AA-' rating to approximately $185 million New York State Environmental Facilities Corporation state personal income tax (PIT) revenue bonds (Environment), consisting of about $167 million series 2007A and about $18 million series 2007B (federally taxable). The bonds are expected to sell through negotiation with a syndicate led by First Albany Capital Inc. during the week of Jan. 15. Fitch also affirms the 'AA-' rating of approximately $8.2 billion outstanding PIT revenue bonds issued by New York state agencies.

Underlying the 'AA-' rating on the PIT bonds are the importance of the PIT (about 60% of state tax receipts), the ample portion set aside for debt service, the trapping of funds if appropriation is not made, and the additional bonds test. Due to these strengths, the rating on the PIT bonds is equal to that assigned to New York's general obligation (GO) debt.

Although payment of debt service is subject to appropriation, each month an amount equal to 25% of estimated PIT receipts (after refunds and deposits to the school tax relief fund) is deposited into the revenue bond tax fund. The deposits are made from the withholding portion of the tax. After retention of 125% of financing agreement payments for PIT bonds due in the succeeding month, excess moneys are transferred to the state's general fund. Should amounts in the revenue bond tax fund be insufficient, the state comptroller is required to transfer from the general fund without the need for further appropriation. If no appropriation is made, deposits to the revenue bond tax fund are trapped and cannot be used (except for GO debt, if necessary), depriving the state of the moneys in excess of debt service.

PIT revenue available for debt service, as defined in statute, is estimated at $30.4 billion in fiscal 2007 (87% withholding), up from $27.6 billion in fiscal 2006 and $25 billion in fiscal 2005. The fiscal 2007 forecast was increased in the state's November midyear financial plan update due to strength in PIT estimated payments. For additional parity bonds to be issued, historical revenue bond tax fund receipts must cover future maximum annual debt service (MADS) on all PIT bonds by at least 2 times (x). After this issue, MADS coverage is about 8.7x by the deposit to the revenue bond tax fund. PIT bonds are now the primary financing vehicle for the state, and substantial additional issuance is expected in the coming years.

New York State's 'AA-' GO bond rating recognizes the state's recovery from the challenges experienced earlier in this decade, substantial wealth and resources, and broad economy, somewhat tempered by uneven performance across the state. The November financial plan update increased revenue estimates, reflecting continued strength in personal income and business tax receipts. The plan forecasts a surplus of $1.1 billion for fiscal 2007, in addition to a rainy day reserve, funded at its statutory maximum of 2%, and $787 million in a spending stabilization reserve (from fiscal 2006 surplus). The strong performance in fiscal 2007 follows a robust fiscal 2006, which ended with a $2 billion surplus after prepayments and was the second year of base revenue growth higher than 10%. Outyear gap forecasts have been reduced, although they remain sizable.

New York's personal income per capita is the fifth highest of the states, at 116% of the national average, and nonfarm employment has expanded year-over-year in every month since March 2004. Employment rose 0.8% in 2005, compared to 1.5% for the U.S., and November 2006 employment was 0.8% above that of November 2005, compared to the nation's 1.3%. Unemployment was a low 4.2% in November, 93% of the U.S. Employment growth in New York City, up 1.1% November-over-November, continues to lead the state.

Debt, currently 5.7% of personal income, is expected to remain above average but still in the moderate range. Pensions are well funded.

The series 2007A bonds mature Dec. 15, 2007-2026; call provisions are yet to be determined. The 2007B (federally taxable) bonds mature Dec. 15, 2007-2011 and are callable at any time.

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