Fitch Rates New Jersey Transportation TFA's $1.2B Bonds 'A+'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to the New Jersey Transportation Trust Fund Authority's (TTFA) up to $1.2 billion transportation system bonds, 2007 series A. The bonds are expected to be offered the week of Sept. 17, 2007 through negotiation with a syndicate led by UBS Investment Bank. In addition, Fitch affirms the 'A+' rating assigned to $8 billion outstanding parity bonds. The Rating Outlook is Stable.

The 'A+' rating on the bonds is based solely on annual contract payments, subject to legislative appropriation, to be made by the State of New Jersey (the state). Authority debt service is paid under a state contract with the treasurer of the state, from payments to be made to the authority from the transportation trust fund account within the state's general fund. The payments are pledged first to debt service. The contract, pursuant to statute, specifies minimum equivalent amounts from several transportation-related taxes and fees, the vast majority of which are now constitutionally dedicated to transportation and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security, only their deposit to the account. Should a shortfall occur, the contract requires the shortfall to be made up from other general fund revenues.

Reauthorization legislation passed in March 2006 resulted in $90 million in additional dedicated revenues and authorized 31-year maturities, the use of delayed principal amortization, and capital appreciation bonds. These changes, along with a fourth debt restructuring, provided capacity for a $6.4 billion five-year capital program for new projects through fiscal years 2007 and 2011. Despite these changes, this leveraging will result in all of the currently dedicated $895 million in revenues being consumed by debt service obligations by 2012 assuming issuance of the full five year program, leaving no resources for additional capital programs thereafter until new revenues are identified.

Fitch's 'AA-' general obligation (GO) bond rating reflects the state's high wealth levels (second highest nationally), broad and diverse economy, and recent increase in the general fund balance. These economic strengths are offset by a high debt burden, a structurally imbalanced budget and ongoing spending pressures, including property tax relief, rising pension, employee benefits, and debt service expenditures. Important to the direction of credit quality is a return to structural balance and sustained economic and revenue performance as the state continues its new property tax relief programs in the face of the aforementioned pressures.

The adopted fiscal 2008 budget provides $16.8 billion in property tax relief and a large imbalance is embedded, reversing previous improvement. The $604 million estimated ending budgetary balance on June 30, 2008 is down from $2.2 billion projected on June 30, 2007, and an estimated $2.5 billion imbalance is projected for fiscal 2009. Revenues rely on continued economic strength and sustained growth of major taxes. On a budgetary basis, total revenues are projected to rise 3.2%, including a 7.5% increase in gross income tax receipts from the prior year. Sales tax collections are projected to increase 3.9%, reflecting the first full year of the expanded base, and the 1% increase to 7%. The corporation business tax receipts are projected to decline 12.5% largely due to the expiration of assessments and net operating loss deductions. Expenditures rise 7.7% from the prior year largely due to increased property tax relief measures.

State non-farm employment in 2006 rose 0.9% from the prior year against 1.8% gain for the nation. July 2007 employment rose 0.5% from a year earlier, lagging behind the national growth rate. Personal income in the state rose 6.1% in the first quarter of 2007, slightly ahead of the 5.8% national rate and behind the strong 6.8% quarterly growth recorded in the region.

The state's debt burden as of June 30, 2007, high at 7.4% of 2006 personal income, is expected to rise due to ongoing capital demands for school construction and transportation projects. Under consideration for fiscal 2009 and beyond is the use of proceeds from asset sales to reduce debt service, allowing for increased funding of other state needs.

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