Fitch Rates New Hampshire's $50MM CP Program 'F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 11, 2002

New Hampshire's (the state) $50 million general obligation bond anticipation notes (BANs), series A (commercial paper), expected the week of Dec. 16, are rated 'F1+' by Fitch Ratings. The notes are being issued in anticipation of the later issuance of already authorized general obligation bonds. The dealer will be UBS PaineWebber Inc. and the issuing and paying agent, Deutsche Bank Trust Company Americas, New York. Liquidity will be provided pursuant to a credit agreement with Landesbank Hessen-Thuringen Girozentrale through its New York branch. The agreement, in the amount of $50 million, will expire Nov. 17, 2003 but may be extended annually. Interest on the notes will be met from the state's general fund.

The state 's economic buoyancy and resilience as well as its conservative debt and financial policies underpin its credit standing, with its general obligation bonds rated 'AA+' by Fitch. The national downturn has had a relatively mild economic impact on the state, but business taxes have significantly underperformed projections resulting in a deficit in the combined general and education funds. Reserves currently exceed the deficit but revenue performance and measures taken to maintain balance will determine credit direction.

In 1997 the state Supreme Court found the state to be responsible for providing adequate education. The initial plan was underfunded and the major revenue source, a statewide property tax, was valid only until Jan. 1, 2003. A new school funding plan was implemented last year which retained existing dedicated funding sources (including previous business tax increases)and provided for further increases in business taxes and other measures as well as higher general fund transfers to the Education Fund. The statewide property tax rate was reduced but the sunset was removed. Such measures would provide for largely balanced operations, however, the funding measures increased the state's reliance on less predictable revenue sources, particularly business taxes, at the same time that the assumption of education as a state responsibility has reduced spending side flexibility. This aspect of school funding remains vulnerability.

For fiscal 2002 revenues underperformed by approximately $44 million, and spending exceeded the budget by about $20 million, resulting in an unaudited $40 million deficit on June 30, 2002. The revenue shortfall was primarily due to lower than expected business tax collections. The widening of the deficit in fiscal 2003 to the $70.4 million level projected in May is still estimated for the June 30, 2003 biennium close, although it could be larger as business tax weakness continued through November but by lessening amounts. Total general and education fund revenues through five months were $2.5 million or 0.4% below revised expectations, an improvement from the $11 million shortfall through four months. The state is also exposed to additional federal Medicaid assistance losses which could also increase the revenue shortfall; $14.8 million is under appeal but an additional $24.6 million payment was recently deferred due to a new challenge of the state's methodology.

Existing state reserves still include $55 million in the stabilization fund and now $34 million in the health care fund, available with legislation to offset a deficit. New Hampshire has net tax-supported debt of $651.6 million, equal to $527 per capita and to 1.5% of personal income, very moderate ratios. Strong personal income and employment growth continued through 2000, sharply slowing to the national average in 2001, but New Hampshire still ranks sixth in per capita personal income. The current economic downturn has been relatively mild with employment increasing 0.8% in 2001, but declining 0.2% in Oct. 2002 as compared with Oct. 2001.