Fitch Rates $200MM State of Ohio Common Schools GO Bonds 'AA+/F1+'.

NEW YORK -- Fitch Ratings assigns an 'AA+/F1+' rating to $200 million State of Ohio common schools general obligation (GO) adjustable-rate bonds, series 2006B-C. The bonds, issued for the state through the Ohio Public Facilities Commission, will sell on June 7 through negotiation with UBS Investment Bank (series 2006B) and RBC Capital Markets (series 2006C). In addition, Fitch affirms the 'AA+' and 'AA+/F1+' ratings of $6.4 billion outstanding Ohio GO bonds. The Rating Outlook is Stable.

The series 2006B-C bonds, maturing on June 15, 2026, subject to prior redemption, initially will be issued with a weekly rate, which may be changed later to other rate periods. Liquidity to pay the purchase price of tendered, but not remarketed, bonds will be provided by the State of Ohio. Therefore, both the long-term and short-term ratings reflect the state's credit quality.

Ohio's 'AA+' rating and Stable Outlook reflect the state's record of maintaining fiscal balance and a moderate, rapidly amortized debt burden. The state's continued dependence on manufacturing, and resulting economic and fiscal volatility, represent an ongoing credit vulnerability. However, the state has demonstrated a willingness to take timely actions to address financial risks. During the recession, it cut expenses repeatedly, raised revenues, and fell back on significant reserves that had been accumulated prior to the downturn. The economy is recovering, albeit slowly, with limited job growth and continued losses in manufacturing. Reserves are growing, but spending pressures in Medicaid and education remain. The state legislature has enacted a limited statutory spending cap, intended to replace a November 2006 ballot measure proposing broader constitutional restrictions on tax and expenditure growth.

Ohio's economy continues to grow slowly, with employment up 0.4% in 2005 compared to 1.5% for the U.S. as a whole. April 2006 employment was 0.5% above April 2005, compared to 1.4% for the U.S. Manufacturing employment continues to drop, down 0.6% in April 2006, although the sector still employs 14.8% of the workforce compared to 10.7% nationally. Growth in personal income and personal income per capita is lagging the U.S.

The budget for the current 2005-2007 biennium, which began July 1, 2005, rebuilds reserves used from 2001-2004 and exhibits notable restraint in increasing spending. Tax reforms, including a phased five-year 21% cut in the personal income tax, and a broadened business tax are expected to slow revenue growth for at least the next two biennia, requiring continuation of constrained spending practices. Through April, actual tax receipts are 0.1% below estimates, with corporate franchise and commercial activity taxes over budget, offset by shortfalls in sales and personal income tax collections. The state expects to reverse most of the income tax underperformance in the remaining months of the fiscal year.

Ohio's moderate, rapidly amortized debt burden remains an important credit strength. Net tax-supported debt equals 2.9% of personal income, and 66% of general revenue fund-supported debt amortizes within 10 years. Funding ratios for major pension systems range from 75%-88%.

The short-term 'F1+' rating of series 2006B and 2006C and other state adjustable-rate bonds backed by self-liquidity is based on the ample amount of state money market and investment balances available to meet liquidity requirements related to the debt. Adjustable-rate bonds will total $742 million after this issuance, equal to 7.1% of tax-supported debt; the state has entered into interest rate swap agreements with each of these issues. The current issues include interest rate swaps in which the state will pay the counterparties a fixed rate and receive payments tied to the London Interbank Offered Rate (LIBOR), with notional amount equivalent to outstanding debt.

As of April 2006, the state's liquidity fund, comprising primarily money market, agency, and domestic commercial paper investments, had a balance of $4.9 billion. With the improvement in the state's revenue collections since 2004, cash balances have been strengthening.

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