Fitch Rates Florida's $238MM GO Capital Outlay Rfdg Bonds 'AA+'.

NEW YORK -- Fitch Ratings assigns an 'AA+' rating to approximately $238.4 million State of Florida full faith and credit state board of education capital outlay refunding bonds, 2005 series B, expected to sell competitively on July 13. Fitch also affirms its 'AA+' rating of approximately $12 billion outstanding Florida full faith and credit bonds.

Florida's general obligation bond rating, upgraded to 'AA+' on March 3, 2005, reflects a moderate debt burden, sound financial management practices, sizable reserves, and a robust, broad, service-based economy. Florida's full faith and credit bonds also carry a pledge of specific taxes for each type of debt. The state targets debt service levels equal to 6% of revenues. Key credit risks include large, primarily growth-related capital needs, especially for schools, and rapid growth of Medicaid spending, which must be contained.

Soaring state revenues have contributed to accumulation of large reserves. The state prudently has limited their use for operating expenditures. The stabilization fund, now about $1 billion, was held intact during the recession. Receipts surged in fiscal 2004, and combined budget stabilization and working capital balances grew to $3.5 billion, or 14.5% of revenues. Revenue projections recently were increased again, and fiscal 2005 is projected to end with $4 billion in balances, or 16.4% of revenues. This does not include a $1.7 billion fund balance in an endowment funded from tobacco settlements for health purposes.

The governor approved the fiscal 2006 budget on May 26, vetoing $69 million of legislatively approved general revenue appropriations. The budget, as approved by the governor, reportedly keeps reserves at significant levels, using some, consistent with past practices, for non-recurring and recurring expenditures. The plan adds $92 million to the budget stabilization fund. Official, more detailed estimates are not yet available.

On April 11, the state's estimating conference increased general revenue forecasts for fiscal years 2005 and 2006 by another $1.1 billion for each year. In November 2004, the group had increased the fiscal 2005 forecast by $1.6 billion. Broad-based strength in consumer spending, business activity, construction, and real estate led to significant increases in projections for receipts of sales, documentary stamp, intangibles, and corporate income taxes. Fiscal 2005 general revenues have been forecasted to be 13% above those of fiscal 2004; fiscal 2006 revenues have been projected to climb another 3.8%.

Florida's economy continues its strong performance. In 2004, employment grew by triple the national rate, and for the 12 months ended May 2005, by 2.9%, significantly above the 1.5% national rate for the same period. Measures of wealth remain average; personal income per capita now ranks 23rd among the states at 96% of the U.S. level. Visitation has rebounded from the downturns of 2001-2002 and the 2004 hurricanes.

Debt places only a moderate burden on Florida's resources. Tax-supported debt equals about 3.4% of personal income and consumes about 6% of revenues. Funding class size reduction will be a challenge in future years. Estimates of capital costs for this purpose have ranged as high as $9.4 billion.

Florida's full faith and credit capital outlay bonds are paid primarily from motor vehicle license taxes. For school and community college districts with participation in these bond issues, the number of instruction units must be set at a level to generate revenues of no less than 1.12 times (x) annual debt service. Districts receive funds for capital outlay pursuant to the constitution before excesses are made available to state transportation funds. Fiscal 2004 aggregate capital outlay distributions for districts from this source cover projected maximum annual debt service (MADS) by 1.18x; total motor vehicle license tax revenues cover MADS by 5.79x. License tax revenues grew by an average 5% per year between 1994 and 2004 and by 4.8% in fiscal 2004; 5.3% growth was forecast in fiscal 2005, and 3.8% is expected in fiscal 2006.

The 2005 series B bonds will mature Jan. 1, 2006-2020, with a term bond option, subject to optional redemption beginning Jan. 1, 2015.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.