Fitch Rates Nevada Real Property Corporation's 2006 Lease Rev COPs 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $5.8 million Nevada Real Property Corporation (corporation) lease revenue certificates of participation (Legislative Council Bureau Project) series 2006, to be offered on August 30 through Lehman Brothers. The 'AA' rating on approximately $43.5 million in outstanding lease revenue certificates of participation is affirmed.

The certificates are payable from state lease rentals subject only to appropriations. The rating reflects the state's broad and high level involvement in the project and financing, as well as the state's credit.

The certificates will finance the design and construction of a warehouse and the rehabilitation of an existing building for the Legislative Counsel Bureau (bureau) in Carson City. The primary occupant will be the bureau (a legal, fiscal, and research agency serving the Nevada Legislature), although the obligation to make lease payments rests with the State of Nevada, subject to appropriation.

State participation is broad and deep, as evidenced by the financing lease being signed by the Governor and the state treasurer serving as the president of the not-for-profit corporation, which is the lessor and issuer of the certificates. The lease was also approved by the State Board of Examiners, which approves state contracts/debt transactions, and the Board of Finance which includes the Governor, Treasurer, and Controller.

The State of Nevada's general obligation bonds are rated 'AA+'. The rating reflects Nevada's sound debt and financial positions, as well as its success in managing the growth and development of its economy. Nevada's debt is a modest burden on resources. The state's financial operations have been positive since fiscal 2004, allowing for replenished reserves and general fund surpluses. The state continues to rapidly attract new investment and population, although the surging construction and real estate sectors in general bear monitoring.

Following a downturn in fiscal years 2002 and 2003, revenues recovered in fiscal 2004 then skyrocketed in fiscal 2005, allowing for replenishment of the stabilization fund, and a one-time tax rebate. The state now benefits from the tax increases, which passed during the downturn and bolstered revenues as well as reduced the state's dependence on the sales and gaming taxes. The new revenues include new taxes on live entertainment and a real estate transfer tax, as well as a redesigned business tax and increases in cigarette and liquor taxes.

Fiscal 2005 general fund revenues were up 14% (inclusive of the tax increases) over 2004 and the state made an additional $50 million contribution to the stabilization fund over the required amount. With gross revenue collections up over 5.5% through 11 months of fiscal 2006, the state expects to exceed the 4.7% estimated general fund revenue growth for the year and has made the legislatively authorized deposit of $37 million to the stabilization fund, bringing its balance to $184.2 million, or 6.4% of estimated general fund receipts. Fiscal 2007 general revenues are expected to rise a more moderate 5.5%, inclusive of a 6% anticipated rise in sales tax, from the fiscal 2006 estimate, and an additional deposit of $34 million to the reserve fund is anticipated. To date the state has been successful in managing growth-related costs, such as education and transportation infrastructure, but such pressures are expected to continue.

Nevada's population and economy have expanded at an extraordinarily rapid rate, with 101% population growth since 1990, compared with 19% for the U.S. In keeping with rapid growth, the construction sector employs 11% of the 2005 employment base, twice the national average, and it has grown over 14% since 2004. July 2006 construction jobs were up 10% from year ago, while total non-farm employment is up 5.1% over the same period. More than one-quarter of jobs are related to tourism and gambling and the leisure and hospitality sector rose 2% from July 2005 to July 2006. Growth in population and jobs has been concentrated in Las Vegas and the city remains a significant draw. Visitor volume in Las Vegas has recovered from falloff associated with the events of Sept. 11, 2001, and the recession, growing to 37.4 million in 2005 from 35 million in 2001. Nevada's 2005 personal income per capita ranks 15th among the states and is 104% of the U.S. average.

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