Fitch Rates $998MM California GOs `AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 26, 2001

Fitch rates $998 million California general obligation bonds 'AA' and affirms the `AA' rating assigned to the $22.6 billion outstanding general obligation bonds, The new bonds, for bids on Feb. 27, are comprised of $600 million construction bonds and $398 million refunding bonds. They are due March 1, the construction bonds in 2001-31 and the refunding bonds, 2002-16; they are callable beginning March 1, 2011, at par.

The rating takes into account the fundamental strengths of California, buttressed by the sustained favorable economy and financial operations. Revenues have soared in the past few years and at June 30, 2000, the general fund had a balance of $9.6 billion. Strength has continued this year and revenues are above the revised estimates presented in January at the time of budget submission. Debt remains moderate in relation to resources.

California has been facing an energy crisis, with a demand/supply imbalance accompanied by high costs for power. The investor owned utilities servicing the state have suffered financially, leading the state, through the Department of Water Resources (DWR) to become a power purchaser and through Feb. 14, $1.2 billion from the general fund, the state reports, has been so used. Plans are being developed for DWR to enter into long term contracts, among other things, to stabilize the situation. DWR plans to issue some $10 billion revenue bonds, to be secured from some portion of customer tariffs, to enable the power purchases. The bonds would not be obligations of the State of California, While the ultimate form of resolution of the situation remains uncertain, based on current information, state credit is not expected to be directly affected. The state will continue to have a financial risk from the amounts it is advancing until repayment, expected from either the revenue bonds or the rate base, takes place.

Although the electric power situation may prove to have negative economic impacts, available statistics suggest that strength is continuing, with employment gains still around 3% and tax collections through January remaining strong. Revenues for 2000-01 were revised upward by 4% in the recommended 2001-02 budget and a balance of $6.6 billion is projected at June 30, 2001. The executive budget for 2001-02 estimates a modest 3.3% increase in revenues and a reduction in fund balance to $3.1 billion, essentially for non-recurring purposes.

Debt position continues to be favorable, with net tax- supported debt of $26.7 billion, or $787 per capita and 2.7% of personal income, both very moderate ratios.