Fitch Rates Connecticut's $300MM GO Bonds 'AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 23, 2004

Fitch Ratings assigns an 'AA' rating to the State of Connecticut's $300 million general obligation bonds, 2004 series C, expected April 27 through negotiation with a syndicate led by Bear, Stearns & Co., Inc., and affirms the 'AA' rating on $8.5 billion outstanding general obligations. The new bonds will be due April 1, 2005-24; call provisions are not yet determined.

The state's fundamental wealth and economic resources continue to underlie its high credit quality although debt is and will continue to be high and fiscal strain remains evident. Operating deficits were incurred in each of the past two fiscal years and their funding adds to the burden of debt. A third consecutive deficit has been threatened this year, due primarily to higher expenditures, but recent revenue trends indicate that a surplus may in fact be achieved. To protect Connecticut's credit standing, a return to balanced operations will be necessary.

Following a period of strong financial operations, growth ceased suddenly in fiscal 2002, resulting in a deficit of $817 million which was met from depletion of the reserve and issuance of $219 million bonds. Although a balancing plan was adopted, fiscal 2003 also ended with a deficit of about $97 million in addition to outstanding claims of $25 million. A deficit funding of these items is planned.

The budget for this biennium included revenue measures as well as expenditure cuts to achieve balance. A deficit emerged, estimated after five months at about $84 million, attributed $60 million to over-spending and $24 million to non-realization of revenue. Subsequently, personal income tax receipts have been revised upward by $224 million, leading the state's office of policy and management to lower the projected deficit in March and in April, replace it with a current year surplus estimate of $68.8 million. The state comptroller did not change the deficit estimate in March, due to concern over spending and the durability of the tax collection trend. The comptroller's projections for April will be released at a later date.

The governor has proposed a number of mid-term budget adjustments to bring operations both this year and next back into balance. They include increasing the taxes on cigarette and other tobacco products as well as alcohol beverages and escheating unclaimed bottle deposits, among other measures. If implemented, they are essentially designed to bring the biennial budget back into exact balance. The budgetary recommendations predate the improved revenue collections.

Connecticut's economy continues to be weak. Employment declined in 2001 and 2002 and the trend has continued, with the total in December 2003 about 1.7% below 2000. January 2004 employment, compared with January 2003, was down 0.9%, and in March, the drop was 0.5%, an improving trend. In March, only manufacturing, government and business and professional services showed losses (3.8%, 1.5% and 1.5%, respectively) while trade was flat and business and gains were made of 0.9% in education and health services, 3.1% in leisure services, 0.7% in construction and 0.5% in financial activities. Personal income growth continues to lag the national rates, with the state's third quarter gain of 2.3% equal to 64% of the U.S.

Connecticut's debt burden is and will remain high. Tax-supported debt currently amounts to $12.9 billion or $3,790 per capita and 8.7% of personal income.