Fitch Rates New Hampshire $75MM GOs 'AA'.

NEW YORK -- Fitch Ratings has assigned an 'AA' rating to the State of New Hampshire's $75 million general obligation (GO) capital improvement bonds, 2008 series A. The bonds will sell competitively on Jan. 10 and are due March 1, 2009-2027. Bonds maturing on or after March 1, 2018, are subject to optional redemption at par plus accrued interest. Fitch also affirms the 'AA' rating on New Hampshire's approximately $654.2 million outstanding GO bonds. The Rating Outlook is Stable.

The 'AA' reflects New Hampshire's economic strength and resiliency and excellent debt position. These strengths are offset partly by the state's dependence on volatile taxes. The state's financial position could be pressured ultimately as the state continues to respond to a State Supreme Court decision on funding primary and secondary education. After a relatively brief downturn earlier this decade, job and healthier income growth returned, and after several years of operating deficits earlier in the decade, New Hampshire's fund balances have been increasing since fiscal 2003.

New Hampshire has an excellent debt position, with debt amortizing quickly and all debt being GO or guaranteed, except for turnpike revenue bonds. As of June 30, 2007, net tax-supported debt of $654.2 million equated to only 1.3% of 2006 personal income, which reflects somewhat the historically limited role of state government. As of June 30, 2007 the state's pension system was only 63.4% funded and improving its actuarial position presents a spending pressure. To that end, it is anticipated that the 2008 legislature will consider the report of a special commission charged with recommending ways to ensure the system's long-term viability.

New Hampshire's tax structure, specifically its lack of an income or general sales tax, differentiates it from all other states, except Alaska, and is a key influencer to its economy. The state relies on business, real estate, and excise taxes, as well as a statewide property tax, which replaced some local taxes and is dedicated solely to education. This unique tax structure is volatile, especially taxes on business profits, which are vulnerable to swings in the business cycle, and on real estate transfers, which are sensitive to housing market conditions. The recessions of the early 1990s and the first few years of this decade led to operating deficits; however, the state rebounded to post moderate budgetary surpluses. Revenue collections for the fiscal 2004-2005 biennium were led by strong business and real estate transfer tax collections and the state ended with combined fund balances of nearly $100 million or 4.6% of revenues. Business tax collections continued the trend throughout the fiscal 2006-2007 biennium, yet the real estate transfer tax weakened notably, particularly in fiscal 2007, as receipts were 13.4% below prior year collections. Nevertheless, with an austere budget - expenditures for the fiscal 2006-2007 biennium grew less than 1% - the state ended the biennium with combined fund balances of $150.7 million or 6.6% of fiscal 2007 revenues.

The current budget positions the state to end the fiscal 2008-2009 biennium on June 30, 2009, with combined fund balances of $129.3 million or 5.2% of fiscal 2009 anticipated revenues. The budget, which contained a tobacco tax increase, relies on total fiscal 2008 and 2009 general and education fund revenues to increase 5.4% and 3.2%, respectively. Reflective in part of the state meeting employee salary and benefit requirements, as well as rising retiree costs, the general and education fund biennial appropriations rise 11.4% from the fiscal 2006-2007 budget. The revenue estimates may prove somewhat optimistic, as the real estate transfer tax is $8.6 million or 11% below estimate, reflective of the state's correcting housing market, through the first six months of fiscal 2008. However, total revenues are only $4.6 million or 0.5% below estimate through December 2007.

The state continues to address State Supreme Court decisions regarding primary and secondary education funding. Most recently, the state defined an adequate education during the 2007 legislature. The additional cost, if any, associated with the definition is not yet known, but is the subject of a special legislative costing committee whose recommendation is expected by Feb. 1, 2008. In 1997 the court placed the responsibility for adequate education on the state. The state responded with the statewide property tax, increases in various taxes, including cigarette and real estate, and a new car rental tax, among other revenue enhancements.

New Hampshire is a prosperous state that has shifted rapidly from manufacturing to services, as its economy has become more like the nation's. The state's population and job growth have generally outpaced New England's since 1980, as the economy continues to benefit from the expansion of Boston suburbs into New Hampshire and growth in the trade, transportation, and utilities and services sectors. The state experienced modest overall job growth of 1.4% and 0.5% in 2005 and 2006, respectively, and gains continued throughout 2007, with employment up 1.3% in November 2007 compared to November 2006. The national rate of job growth was 1%, over the same period. Per capita income for 2006 was 108% of the nation's, ranking New Hampshire seventh among the states.

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.