Fitch Rates NJ Transportation TFA $653MM Bonds 'AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 22, 2003

New Jersey Transportation Trust Fund Authority's transportation system bonds, $323,015,000 2003 series A and $330,000,000 2003 series B (periodic Auction Reset Securities)(PARS) to be offered by negotiation on or about Jan. 23 through a syndicate led by Goldman, Sachs & Co. are assigned a 'AA' rating by Fitch Ratings. The 'AA' rating assigned to $5.1 billion outstanding parity bonds is affirmed. The bonds are issued for refunding purposes. The bonds are secured by and payable from stated payments to be made to the Authority from the Transportation Trust Fund account within the state's general fund under a contract with the Treasurer of the State of New Jersey. Payments, pledged first to debt service, are subject to legislative appropriation. The amended contract, pursuant to legislation, specifies minimum equivalent amounts from several transportation-related taxes and fees, the vast majority of which are now constitutionally dedicated to transportation and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security, only their deposit to the account. Should a shortfall in yield occur, it would be made up from other general fund revenues.

Since security rests solely on the appropriations to be made by the state, the rating on these bonds reflects the state's ability to service appropriation debt as well as the constitutional dedications; general obligation bonds are rated 'AA'. New Jersey is a wealthy state, third highest in per capita personal income; its economy is broad and diverse. However, financial operations have been imbalanced and debt levels, while still moderate, are above average and rising as the state addresses court ordered educational facilities requirements. In addition to raising business taxes and restraining spending, temporizing measures have been utilized to plug funding gaps following the last fiscal year's steep revenue underperformance, and revenue weakness and funding pressures continue. As the imbalance will not likely be solved through economic growth, the proposed budget, due next month, will be evaluated particularly for measures leading to structural re-balance.

Revenues underperformed and declined in fiscal 2002, requiring use of most of $1.2 billion surplus as well as other one-time measures. The gross income tax declined by $1.15 billion or about 15%. Use of over $1.0 billion in tobacco settlement bond proceeds and other temporizing measures were budgeted for the fiscal 2003, to help close what was a $6.0 billion projected funding imbalance. Business taxes were restructured to raise about $1.0 billion. The magnitude of the imbalance however, requires solutions over multiple years and another tobacco settlement bond issue was anticipated for fiscal 2004.

Tax collections through the first half of this fiscal year are on target, however, the sluggish economic recovery and the decline in the stock market raises concern for revenue realization in the spring when the majority of income taxes are collected. Sales tax revenues were nearly 3.0% below estimates through December and December holiday sales, which are expected to be disappointing, are not reflected. However, business taxes are ahead of estimates. Net taxes for the full fiscal year are now expected to be approximately $500 million below estimates. Offsetting factors include nearly an equal amount in higher net proceeds from the tobacco bond sales and a higher beginning fund balance than originally projected. The gross income tax is expected to realize $300 million less in revenues than was estimated but is still projected to increase 2.4%. Sales taxes are expected to be $172 million lower with no growth now anticipated.

In addition to the tax estimate revision, federal reimbursements of some $500 million are in doubt. Also $400 million in additional appropriations have been identified, offset by $220 million in savings from a spending freeze already enacted and savings achieved from bond refundings. Other savings are being developed. The funding challenges for next year's budget, now estimated at about $5.0 billion, are already heightened by the large levels of non-permanent resources in the current year budget, and are exacerbated by the current year pressures. Other funding pressures continue such as debt service, as the state continues issuance under the $7.5 billion remaining authorization for school construction related to the 'Abbot' court decision and legislative act.

Net tax-supported debt amounts to $18.9 billion, or $2,186 per capita and 5.6% of personal income. These ratios, in the moderate range, are above average and climbing. About $2.8 billion of the total represents bonds issued for the unfunded liability of the retirement systems; debt service replaces a like amount formerly met from appropriations. If this debt is excluded, the ratio to personal income declines to 4.9%.