Fitch Rates NY Thruway's $425MM Personal Income Tax Revs 'AA-'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to approximately $425 million New York State Thruway Authority state personal income tax (PIT) revenue bonds (transportation), series 2009A. The bonds are scheduled to sell through negotiation during the week of May 25, 2009 and mature March 15, 2010-29. Fitch also affirms the 'AA-' rating of approximately $13.7 billion outstanding PIT revenue bonds issued by New York state agencies. The Rating Outlook is Stable.

Underlying the 'AA-' rating on the PIT bonds is the importance of the PIT to state finances (historically about 60% of tax receipts), the ample portion of PIT set aside for debt service, the trapping of funds if appropriation is not made, and the 2 times (x) additional bonds test (ABT). Due to these strengths, the rating on PIT bonds is equal to that assigned to New York's (the state) general obligation (GO) debt despite the appropriation requirement. The temporary PIT rate increase included in the state's fiscal 2010 enacted budget bolsters the PIT revenue stream in the current economic downturn, resulting in modest projected growth for the year.

Although payment of debt service on PIT bonds is subject to appropriation, each month an amount equal to 25% of estimated available PIT revenue (i.e., receipts after refunds) is deposited into the revenue bond tax fund 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.

Available PIT revenue, as defined in statute, rose from $30.6 billion in fiscal 2007 to $36.6 billion in fiscal 2008. This reflected legislative action that, effective April 1, 2007, eliminated the prior deduction of deposits to the school tax relief fund in the definition of available PIT receipts for bond purposes. The state repeatedly lowered the forecast for PIT revenues over the course of fiscal 2009, and revenues reportedly came in at $36.8 billion, basically flat to fiscal 2008. With the temporary PIT rate increase, which establishes two new brackets and a top rate of 8.97% as compared to the prior 6.85%, fiscal 2010 revenues are projected at $37.2, a 1.1% increase over fiscal 2009, despite the large projected decline in state personal income. The new tax rates will be in effect for tax years 2009 through 2011.

Debt service coverage is substantial. 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. MADS coverage under this test is now about 7x. PIT bonds are the primary financing vehicle for the state and substantial additional issuance is expected in the coming years.

The state's 'AA-' GO rating reflects its substantial wealth and resources and broad economy, while recognizing concerns, now heightened, regarding the outsized role that the financial services industry plays in the state's economy and revenue system. State net tax-supported debt levels have been relatively stable as a percentage of personal income and are expected to remain above average but still in the moderate range; pensions are well funded.

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.