Fitch Rates Ohio Building Authority's $112.8MM 2006 A & B Bonds 'AA'.

NEW YORK -- Fitch Ratings has assigned an 'AA' rating to the Ohio Building Authority's (the authority) approximately $112.8 million state facilities bonds and state facilities refunding bonds, consisting of:

-- $40,000,000 state facilities bonds (administrative building fund projects), 2006 series A;

-- $72,845,000 state facilities refunding bonds (administrative building fund projects), 2006 series B.

The bonds are expected to sell via negotiation on or about Sept. 21 with a syndicate led by Morgan Stanley. Series 2006A matures April 1, 2007-16 and is not subject to early redemption. Series 2006B matures Oct. 1, 2007-18 and call provisions have yet to be determined. Fitch also affirms the 'AA' rating of $3.4 billion outstanding appropriation bonds for the state of Ohio (the state).

The 'AA' rating on bonds backed by the state's lease appropriations reflects the state's general credit standing, sound lease structures, broad state purposes of financed projects, and constitutional authorization for these types of bonds. For these issues, bonds are secured by rental payments that are appropriated biennially under a lease with the department of administrative services. The trustee does not have the ability to take possession of or operate the leased projects. The state manages its debt conservatively and has a moderate debt burden; including the current issue, tax-supported debt equals 2.9% of 2005 personal income. Ohio amortizes its debt rapidly, 67% in ten years.

The state's broad economy continues to grow slowly since emerging from recession in 2004, with employment increases in services offsetting ongoing declines in manufacturing. Employment rose 0.4% in 2005 compared to 1.5% for the U.S. as a whole. July 2006 employment was 0.5% above July 2005, compared to 1.3% for the U.S. Growth sectors include professional and business services, up 1.5%, and educational and health services, up 1.6%. Manufacturing employment continues to drop, down 0.9% in July 2006. Manufacturing declines reflect in part ongoing weakness among domestic auto makers and parts suppliers. The recent announcement by Ford Motor Company of further cuts will result in closure of a 700-worker facility in Maumee and sale or closure of a 1,700-worker facility in Sandusky. Ohio's personal income growth has trailed the U.S., with first quarter 2006 rising 3.7%, behind the U.S., at 5.1%.

The fiscal 2006-2007 biennial budget incorporated wide-ranging tax reforms that were anticipated to constrain revenue, requiring commensurate spending restraint, particularly in Medicaid. Fiscal 2006 results nonetheless were stronger than planned, with tax receipts 1.3% ahead of budget, led by personal income, 1.3% over budget, and corporate franchise, 10.7% over budget. Sales and use tax lagged 1.5% behind budget. Combined with lower than planned general fund disbursements, particularly in health and education, the year ended with a fund balance of more than $1 billion.

Last year's fiscal strength enabled the state to deposit $394 million to the budget stabilization fund, bringing its balance to $1 billion, nearly 4% of revenues and the highest level since fiscal 2001. In addition, the state is accelerating scheduled income tax cuts, at a cost of $210 million in fiscal 2007, and using $503 million to fund fiscal 2007 appropriations. The fiscal 2007 revenue forecast was lowered 0.5%, with tax receipts being reduced 0.8%. The changes reflect both the acceleration of income tax cuts, and a more conservative outlook on sales taxes based on fiscal 2006 results. Fiscal 2007 actual collections through August show continuation of prior year trends, with income taxes running 3.1% ahead of plan, and sales and use falling 1.5% behind plan. Overall tax collections are 1.1% ahead of forecast.

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