Fitch Rates New York State Dormitory Authority's $406MM PIT Bonds 'AA-'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned an 'AA-' rating to the Dormitory Authority of the State of New York's (DASNY) approximately $406,245,000 state personal income tax (PIT) revenue bonds, consisting of:

--$99,805,000 series 2009G state PIT revenue bonds (general purpose);

--$250,000,000 series 2009H (federally taxable - Build America Bonds) state PIT revenue bonds (general purpose);

--$56,440,000 series 2009 qualified school construction bonds (tax credit bonds) state PIT revenue bonds (education).

Fitch has also affirmed the 'AA-' rating of approximately $16.4 billion outstanding PIT revenue bonds issued by New York state agencies. The bonds are scheduled to sell the week of Oct. 5, 2009 through negotiation. The Rating Outlook is Stable.

Underlying the 'AA-' rating on the PIT bonds is the importance of the PIT to state finances (historically about 60% of tax receipts), the ample portion of PIT set aside for debt service, the trapping of funds if appropriation is not made, and the 2 times (x) additional bonds test (ABT). Due to these strengths, the rating on PIT bonds is equal to that assigned to New York's (the state) general obligation (GO) debt despite the appropriation requirement. The temporary PIT rate increase included in the state's fiscal 2010 enacted budget bolsters the PIT revenue stream in the current economic downturn; although revenues are still expected to fall 1.9% in fiscal 2010 based on the first quarter update to the financial plan released in July 2009 and actual revenues are underperforming this estimate.

Although payment of debt service on PIT bonds is subject to appropriation, each month an amount equal to 25% of estimated available PIT revenue (i.e. receipts after refunds) is deposited into the revenue bond tax fund from the withholding portion of the tax. After retention of 125% of financing agreement payments for PIT bonds due in the succeeding month, excess moneys are transferred to the state's general fund. Should amounts in the revenue bond tax fund be insufficient, the state comptroller is required to transfer from the general fund without the need for further appropriation. If no appropriation is made, deposits to the revenue bond tax fund are trapped and cannot be used (except for GO debt, if necessary), depriving the state of the moneys in excess of debt service. The 35% interest subsidy to be received from the U.S. Treasury for the 2009H Build America Bonds is expected to be deposited to the credit of the state and is not pledged as security for the bonds.

Available PIT revenue, as defined in statute, rose from $30.6 billion in fiscal 2007 to $36.6 billion in fiscal 2008. This reflected legislative action that, effective April 1, 2007, eliminated the prior deduction of deposits to the school tax relief fund in the definition of available PIT receipts for bond purposes. The state repeatedly lowered the forecast for PIT revenues over the course of fiscal 2009, and revenues came in at $36.8 billion, basically flat to fiscal 2008. Even with the temporary PIT rate increase, which establishes two new brackets and a top rate of 8.97% as compared to the prior 6.85%, fiscal 2010 revenues are projected to fall to $36.1 billion, a 1.9% decline from fiscal 2009, reflecting a large projected decline in state personal income, and actual revenues have been below this forecast. The new tax rates will be in effect for tax years 2009 through 2011.

Debt service coverage is substantial. For additional parity bonds to be issued, historical revenue bond tax fund receipts must cover future maximum annual debt service (MADS) on all PIT bonds by at least 2x. MADS coverage under this test is about 5.3x, including all issuances expected this month. PIT bonds are the primary financing vehicle for the state and substantial additional issuance is expected in the coming years.

The state's 'AA-' GO rating reflects its substantial wealth and resources and broad economy while recognizing concerns, now heightened, regarding the outsized role that the financial services industry plays in the state's economy and revenue system. State net tax-supported debt levels have been relatively stable as a percentage of personal income and are expected to remain above average but still in the moderate range; pensions are well funded.

The Stable Outlook reflects actions taken to address large budget gaps for fiscals 2009 and 2010 and the expectation that the state will be able to address the shortfall that emerged for the current fiscal year following July 30, 2009 revenue estimate revisions, as well as potential future revenue underperformance, in a manner consistent with the current rating level. The extent of actual financial services industry losses, and the ultimate shape that the industry takes, remain a major uncertainty going forward. Revenues through August were reportedly below the July estimates and the current-year gap estimate is likely to be increased when the financial plan is next reviewed later this month.

For more information on the State of New York, see Fitch Research 'Fitch Affirms New York State GOs at 'AA-'; Outlook Stable' dated Aug. 4, 2009, and available on the Fitch Ratings web site at 'www.fitchratings.com'.

Additional information is available at www.fitchratings.com.

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