Fitch Rates New Jersey EDA's $675MM School Facilities Construction Bonds 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to the New Jersey Economic Development Authority's (the authority) approximately $675,000,000 school facilities construction bonds in two series. Security for the school facilities construction bonds consists of state payments, subject to appropriation, made pursuant to a contract between the state treasurer and the authority. The payments are equal to debt service. In addition, the 'A+' rating on $4.73 billion outstanding school facilities construction parity bonds is affirmed by Fitch. Also affirmed is the 'AA-' rating on $3.1 billion outstanding State of New Jersey general obligation (GO) bonds.

The school facilities construction bonds are being issued under an authorization of $8.6 billion school bonds, pursuant to state legislation primarily to meet court-ordered capital requirements. A total of $4.8 billion, exclusive of refunding bonds, has been issued under the authorization. The bonds continue the program, which reflects the New Jersey Supreme Court holding in Abbott vs. Burke, regarding the adequacy of school funding. The authorized bonds include $100 million for county vocational school districts, $6 billion for Abbott districts, and $2.5 billion for other districts. The state provides 100% of the costs (and undertakes the construction) for facilities in the Abbott districts, defined as the 28 poorer urban districts, and provides for at least 40% of costs for other districts. The Authority issues the school construction bonds with the New Jersey Schools Construction Corporation responsible for all construction.

School construction costs for the Abbott district projects have subsequently risen substantially above the $6 billion in bonds authorized. This has resulted in the suspension of previously planned projects, a problem that the state will have to confront. Reportedly, the state supreme court recently heard oral arguments from Abbott plaintiffs who are seeking a determination by the state Department of Education to estimate the cost of completing the suspended projects. The state inspector general conducted a review of the Corporation operations, with certain recommendations already implemented.

Annual debt service payments on school facilities construction bonds relies solely on the state annual contract payments payable from the state's general fund, subject to annual legislative appropriations. Accordingly, the rating reflects the general creditworthiness of the state. The state's general obligation bonds are rated 'AA-', reflecting the strength of the underlying economy offset by significant challenges, including capital funding pressures for transportation and school construction, which have elevated debt to high levels, and a reduced but still significant budget imbalance. Continuing demands remain to relieve high local property taxes. Projected increases in pension requirements next year will contribute to budget pressures, although the systems remain relatively well funded, at 87.2% as of June 30, 2004. Litigation over the state's funding levels in fiscal 2004 and fiscal 2005 for state teachers has been joined in a separate suit by the Professional Firefighters Association of New Jersey, alleging that the state did not fully fund these systems when it deferred payments during the recent downturn. The state reports that it continues to defend this matter.

Net tax-supported debt is equal to $29.3 billion after several authority sales and forward delivery bonds are completed in the next few weeks. Debt levels are high at 8% of personal income, declining to 7.3% of personal income excluding pension bonds. The fiscal 2005 projected ending balance is estimated at $644 million after funding of tax rebates. The adopted fiscal 2006 budget alters recent trends, reducing spending growth to just 1.5% adjusted for inter-year transactions. By contrast, the base growth for the three major taxes is reasonably estimated to increase by 6%. The projected fiscal 2006 ending balance is $600 million.

The scope of the state's employment base is broad with employment minimally affected in the recent downturn. Employment rose 0.6% in 2004, albeit slower than the 1.1% gain for the U.S. September 2005 employment rose 1.2% from one year ago. The state's wealth levels are high, ranking third by measure of per capita personal income. Personal income growth is beginning to improve with second-quarter 2005 personal income up 6.3% from second-quarter 2004, the same as the national rate of gain.

Two series of parity bonds are being issued.

-- Approximately $175 million 2005 series P are expected to be sold on Nov. 30 through a syndicate led by Wachovia Bank, National Association. The 2005 series P are fixed-rate bonds due Sept. 1, 2008-30;

-- Approximately $500 million 2005 Series Q bonds are expected to be sold on Dec. 13 through a syndicate led by Bear, Stearns & Co., Inc. The 2005 series Q bonds will initially be sold as auction-rate bonds, structured with approximately six sub-series. The 2005 series Q bonds, due March 1, 2008-2031, relate to the fourth tranche of the 2003 forward starting swaps. The effective date of the swap is March 1, 2006 and the notional par amount is $500 million. The 2005 series P and 2005 series Q bonds are likely to be insured.

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.