Fitch Rates NY Thruway $234.1MM Personal Income Tax Bonds 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to $234.1 million New York State Thruway Authority state personal income tax (PIT) revenue bonds (transportation), series 2005A. The bonds will sell through negotiation with a syndicate led by JPMorgan during the week of June 27. The bonds mature March 15, 2006-2025, with call provisions to be determined. Also, Fitch affirms the authority's 'AA-' $4.5 billion outstanding PIT bonds of various state agencies.

Underlying the 'AA-' rating, which is the same rating assigned to New York's general obligation bonds, are the importance of the PIT (comprising about 60% of state tax receipts), the ample portion set aside for debt service, the trapping of the funds if appropriation is not made, and the additional bonds test.

Five agencies, major borrowers for the state, issue PIT bonds secured by a dedication of PIT receipts, subject to appropriation. New York uses these five and other agencies as financing vehicles, and all such debt formerly was secured by the intent to appropriate for debt service.

While 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 in 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 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, the deposits to the revenue bond tax fund are trapped, depriving the state of the moneys in excess of debt service.

PIT revenue available for debt service, as defined in statute, is estimated at $27.1 billion in 2005-2006, up from $25 billion in 2004-2005 and $21.8 billion in 2003-2004. The withholding component is estimated at $24.5 billion, which would cover the required $6.8 billion deposit to the general fund by 3.6 times (x). Maximum annual debt service (MADS) on all PIT bonds after this issue is estimated to be covered 12.7x by the deposit. For additional parity bonds to be issued, historical revenue bond tax fund receipts must cover future MADS on all PIT bonds by at least 2x.

New York is a wealthy state with a broad and diverse economy. After several years of revenue underperformance, which required deficit financing and other nonrecurring measures, the economy began to improve early in 2004. Fiscal 2004 revenues were above estimates, and fiscal 2005 revenues exceeded forecasts throughout the year. Fiscal 2005 ended with strong base tax revenue growth of 12%, a positive general fund GAAP balance, and general reserves of $1.5 billion (more than 3% of general fund spending).

The budget for the current fiscal year, which started on April 1, was passed on time for the first time in 21 years. Revenue estimates appear very reasonable, and revenue performance through April is reported to have been strong. The budget closed a projected gap through spending cuts, including Medicaid cost containment, revenue actions, and cost shifting out of the general fund. The budget also uses $889 million in nonrecurring measures, down from $2.1 billion in fiscal 2005 and $3.2 billion in fiscal 2004. Outyear gaps are currently estimated at $3.2 billion for fiscal 2007 and $4.1 billion for fiscal 2008, assuming use of a $601 million fiscal stability reserve included in the current-year budget. These outyear gap forecasts include the impact of the end of temporary sales and personal income taxes, and are relatively low compared to estimates in prior years.

The school funding court case remains unresolved, although state appeals effectively remove it as an immediate budget issue. As part of the fiscal 2006 budget, the legislature passed the first phase of a new sound basic education aid program, which dedicates video lottery terminal (VLT) revenue to incremental school funding.

New York's tax-supported debt burden of $41 billion remains above average, but is still in the moderate range at approximately 5.8% of personal income, rising to 6.6% with the inclusion of contingency contracts related to financially distressed hospitals and tobacco securitizations. If $2.6 billion of New York City Sales Tax Asset Receivable Corp. bonds, secured by annual state payments from the Local Government Assistance Corp., are also included, debt rises to 7.1% of personal income.

The New York economy is improving. Following declines in 2001-2003 totaling 2.6%, non-farm employment has expanded over the year in every month since March 2004. Average monthly employment grew by 0.5% in 2004. May 2005 employment was 0.9% above that of May 2004, led by solid gains in leisure, educational and health services, and professional services. Manufacturing declined 2.9% over the period. Personal income growth had lagged the nation, but 2004 growth of 5.9% exceeded the national rate of 5.7%. The state's preliminary rate of personal income growth of 6.4% between first-quarter 2004 and first-quarter 2005 lags both the nation's 6.8% and the regional 6.6% rate of growth. The state's personal income per capita is the fifth highest in the U.S.

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.