Fitch Rates $66.7MM Oregon COPs 'A+'.

NEW YORK -- Fitch Ratings assigns an underlying 'A+' rating to $66.7 million State of Oregon department of administrative services certificates of participation (COPs), 2007 series A. The COPs are expected to sell Feb. 27 through negotiation with a syndicate led by Citigroup and will be due Nov. 1, 2007-2033. The issue is expected to be insured by FGIC, whose insurer financial strength is rated 'AAA' by Fitch. Fitch also affirms the 'A+' rating for $1.08 billion of outstanding COPs.

The certificates offered represent ownership in loan payments to be made by the State of Oregon, acting by and through the director of its department of administrative services as the borrower under supplemental loan agreements with the certificate trustee. Although loan payments are subject to appropriation by the state legislature, centralization of the certificate authorization and the issuance and payment process, as well as the importance of the leased assets, support the credit.

Oregon's 'AA-' rating and the Stable Rating Outlook are based on the state's strong economic recovery and rapidly improving revenues, tempered by the inability to retain balances, increasing yet still moderate debt, and a proclivity for initiatives with negative fiscal impacts. Revenue growth has been very strong, leading to operating surpluses; however, 'kicker' provisions requiring return of the surplus to taxpayers compromises the building of reserves. The state's economy is prone to wide swings, and after a sharp recession earlier this decade, Oregon experienced a strong jobs recovery in 2004 and 2005.

The state is dependent on the personal income tax, which made up 88% of 2006 GAAP general fund revenues and has been volatile, falling 12% in the 2001-03 biennium, rising nearly 17% in the 2003-05 biennium, and is now forecast to grow another 20% this biennium. The current forecast projects a $1,373 million general fund surplus by the close of the biennium. However, under the Oregon Constitution, if the amount of general fund revenues actually received in a biennium exceeds the amount of revenues estimated for the biennium by 2% or more, the excess must be returned to Oregon taxpayers. Under current estimates, the state would return about $1,097 million of personal income taxes and $275 million of corporate income taxes to taxpayers in the next biennium unless the governor's proposal to redirect the estimated corporate income tax credit into a rainy day fund is approved by the state legislature.

Oregon's economy tends to be more volatile than the nation's, once because of its reliance on agriculture and natural resources, and today because of its large high-tech sector. Oregon posted three consecutive annual job losses in 2001-03, before job growth returned with 2.1% growth in 2004 and 3.1% in 2005. December employment was 1.9% above the prior year, with construction jobs up 7.8%. Income growth has rebounded at a slower rate, with income lagging the nation for six of the last seven years before exceeding it in 2005.

While state debt is still moderate, it has tripled since 2000, principally as a result of deficit and pension borrowings. Following this issuance, net tax-supported debt will be nearly $5.5 billion, equal to $1,504 per capita, or 4.7% of personal income, or 2.9% without including pension bonds.

About $33 million of the bond proceeds will be used to finance a portion of the construction for a new state prison at Madras, Oregon. This is the third of three financings for the prison project, totaling an estimated $173 million. Remaining proceeds will fund work on expansion at the Coffee Creek corrections facility, upgrades at various state university facilities, and other smaller projects. The certificates will be paid from state general fund appropriations, made directly by the department of administrative services, which is responsible for all certificate issuance on behalf of the state; it also prepares the governor's budget.

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