Fitch Rates Idaho State Bldg Auth $127.8MM Bnds 'AA-'; Upgrades Outstanding Bonds to 'AA-'.

NEW YORK -- Fitch assigns an 'AA-' rating to Idaho State Building Authority's approximately $127,805,000 state building revenue bonds, series 2006 (Idaho State Capital Project) to be negotiated on Sept. 27 through Lehman Brothers. The bonds are due Sept. 1, 2007-2014 with other details yet to be determined. In addition, Fitch upgrades to 'AA-' from 'A+' the underlying rating of various series of outstanding bonds of the Idaho State Building Authority as listed at the end of this release. The rating is an underlying rating as certain bonds have municipal bond insurance.

The rating is based primarily on the credit of the state as all lease rental payments derive from direct state appropriations. The rating upgrade to 'AA-' reflects the over 30-year history of lease debt issuance by the state building authority and its recent centralization under the Department of Administration. The program and structure provide a strong basis for debt repayment as all projects and debt are approved by the state legislature. Leases renew automatically absent action by the state at least 10 months prior to scheduled expiration. Lease payments are not dependent upon use and occupancy. A debt service reserve for each project is established at the lesser of maximum debt service, 125% of average annual debt service, or 10% of original principal. Lease payments for debt service are required to be made in their entirety within 30 days after the beginning of each fiscal year.

The 2006 bonds will be used for a state capitol building project for the renovation of the existing capitol building and the addition of two atrium wings, one wing to each side of the existing capitol building. The capitol building project has been in the planning stage for several years and the enlarged scope of the project and this financing have been approved by the legislature. The lease and other legal documents will be executed upon closing. The initial term of the lease ends June 30, 2007. While state general fund appropriations are the source of funds for the lease payments, the state also has allocated undesignated cigarette tax revenues for lease payments. Total gross cigarette tax collections in fiscal 2006 amounted to $46.4 million with undesignated revenues of $23.8 million providing 1.19 times (x) coverage of maximum annual lease payments.

Idaho's tax-supported debt, amounting to approximately $383.3 million with this issue, presents only a very minor burden of 1% of personal income. The state has no general obligation debt. Pensions are well funded.

With economic recovery, employment and personal income growth have exceeded projections in the last two fiscal years. Strong revenue growth allowed the planned expiration of the temporary 1% sales tax increase enacted during the downturn at the end of fiscal 2005. The state's fiscal position has steadily improved, led by a stronger economy and fiscal actions to restore balance following economic weakness and personal income tax shortfalls in fiscal 2002. Fiscal 2006 personal income taxes rose 8.6% from projections and almost 8% from the prior year with fiscal 2006 collections up over 20% from estimates. Surplus balances have enabled replenishment of reserves. The fiscal 2006 ending general fund balance on June 30, 2006 was $317 million with another $105 million held in the budget stabilization fund. The state employs appropriation holdbacks to achieve budget balance.

The state has enacted legislation providing for school building repairs to resolve school finance litigation and, in a recent special session, provided $250 million in local property tax relief. Fiscal 2007 includes statutory transfers for school capital construction and the property tax relief through a 1% increase in the state sales tax to 6% effective Oct. 1, 2006. This change does not increase education funding. However, the state's share of education funding is now increased to 79.5% from 65% by replacing the local maintenance and operating property tax levy with the state's 1% sales tax increase and $50 million of surplus balances. The state also used $100 million to establish an educational stabilization fund.

Two education measures are on the November 2006 ballot. The legislature has placed an advisory vote for the approval of the enacted 1% sales tax increase for property tax relief. A separate initiative, Proposition 1, seeks to increase education spending and hold harmless other public funding. Certified prior to the 1% increase in the state sales tax for property tax relief, Proposition 1 would have applied proceeds of a 1% sales tax increase exclusively for increased education funding. However, now that the sales tax has been increased for a different purpose, the provisions of this proposition would charge the legislature to develop alternative revenues for education funding equal to the amount of revenue generated by the sales tax increase, about $219 million. Initiatives in Idaho become law upon their passage but cannot supercede constitutional provisions that require a balanced budget.

While the Idaho economy has traditionally depended on natural resources, expansion in the past decade centered on high-technology electronics and services. Despite the industrywide downturn and resulting employment losses prevalent in that sector, overall employment did not decline, in contrast to that of the U.S. Employment growth has since exceeded the U.S., gaining 2.6% in 2004 and another 4.2% in 2005. While the state had forecasted moderate employment gains for this year, July 2006 employment rose 4.6% from one year ago compared to 1.3% for the U.S.

Fitch upgrades the following Idaho State Building Authority bonds:

-- 1994 Project 7 Parks department;

-- 1998A Project 8 State prison facility project;

-- 1998B Project 5 1992 prison dormitory project;

-- 1998C Project 6 State hospital north project;

-- 2001A Project 10 Ponderosa park project;

-- 2001B Project 11 State school and hospital project;

-- 2001C Project 12 Billingsley creek project ;

-- 2003A Project 13 Idaho water center project;

-- 2003B Project 13 Idaho water center project;

-- 2003C Project 4 1988 state prison project;

-- 2003D Project 14 Idaho State University project;

-- 2003E Project 15 Boise State University project;

-- 2003F Project 16 University of Idaho project;

-- 2003G Project 17 Lewis-Clark State College Project;

-- 2003H Project 18 Northern Idaho College project;

-- 2003I Project 19 College of Southern Idaho project;

-- 2003J Project 20 Idaho State Police/POST Academy project;

-- 2005A Project 21 Eastern Idaho Technical College project.

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.