Fitch Rates Dorm Auth. of the State of New York $944MM Income Tax Bonds 'AA-'.

NEW YORK -- Fitch assigns an 'AA-' rating to $944,080,000 Dormitory Authority of the State of New York (DASNY) state personal income tax (PIT) revenue bonds, consisting of $822,865,000 (education), series 2006D; $39,250,000 (state facilities and equipment), series 2006B; $9,480,000 (economic development and housing), series 2006B; and $72,485,000 (education), series 2006E (federally taxable). The tax-exempt bonds are expected to sell through negotiation with a syndicate led by Lehman Brothers during the week of November 27. The federally taxable bonds are expected to sell through negotiation with a syndicate led by Loop Capital Markets, LLC. In addition, Fitch affirms the 'AA-' rating of approximately $7.4 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 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 reduction 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 recent 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 2x. After this issue, MADS coverage is about 8.8 times (x) by the deposit to the revenue bond tax fund, dropping to about 8.3x after a planned upcoming ESDC issue.

The State of New York's 'AA-' general obligation 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 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, which is 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 October 2006 employment was 0.8% above that of October 2005, compared to the nation's 1.4%. Unemployment was a low 4%, 91% of the U.S. Employment growth in New York City, up 1.4% October-over-October, continues to lead the state. The cities of Rochester and Buffalo are losing jobs.

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

This week's New York State Court of Appeals decision ends the ongoing Campaign for Fiscal Equity (CFE) lawsuit regarding funding of New York City schools. Although the $1.9 billion in incremental annual operating funding that was included in the court's ruling is significant, the figure is much smaller than the incremental funding included in previous findings. Moreover, the conclusion of this case resolves a major point of uncertainty and potential financial exposure for the state.

The series 2006D (education) bonds mature March 15, 2008-2036. The series 2006B (state facilities and equipment) bonds mature March 15, 2008-2010. The series 2006B (economic development and housing) bonds mature December 15, 2007-2016. The federally taxable 2006E (education) bonds mature March 15, 2008-2017. Call provisions are yet to be determined for the series 2006D (education) bonds; the three other series are non-callable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.