Fitch Rates Ohio Infrastructure $120MM Improvement GO Bonds 'AA+'.

NEW YORK -- Fitch Ratings assigns an 'AA+' rating to $120 million State of Ohio infrastructure improvement general obligation (GO) bonds, series 2006A. The bonds are expected to sell via negotiation on Oct. 25 with a syndicate led by Merrill Lynch & Co and Seasongood & Mayer LLC. The bonds will be due March 1, 2007-2026; optional redemption provisions have yet to be determined. Fitch also affirms the 'AA+' rating of $6.8 billion of outstanding GO bonds of the state. The Rating Outlook is Stable.

The state of Ohio has a demonstrated record of maintaining fiscal balance and moderate, rapidly amortizing debt burden. The state's economy is broad, and continues to grow slowly since emerging from recession in 2004, with employment increases in services offsetting ongoing declines in manufacturing. Ohio's debt burden remains moderate; including the current issue, tax-supported debt equals 3% of 2005 personal income. Ohio amortizes its debt rapidly, 67% in 10 years. The current issue is the tenth under a voter-approved, 1995 constitutional program to assist local governments with infrastructure needs.

The fiscal 2006-2007 biennial budget incorporated wide-ranging tax reforms, including a five-year, phased-in income tax cut, a new, broader commercial activity tax, and a cut in the sales tax rate to 5.5%, from 6%. Initially expected to constrain revenue growth, fiscal 2006 actual revenues were stronger than planned, with tax receipts 1.3% ahead of budget on personal and corporate franchise tax strength. 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. The state deposited $394 million to the budget stabilization fund, bringing its balance to $1 billion, nearly 4% of revenues.

As a result of strength in fiscal 2006, Ohio accelerated scheduled income tax cuts at a cost of $210 million in fiscal 2007. The fiscal 2007 revenue forecast was lowered 0.5%, with tax receipts reduced 0.8%, reflecting acceleration of income tax cuts, plus a more conservative outlook on sales taxes based on fiscal 2006 results. Fiscal 2007 actual collections through September show tax receipts off 0.8% from budget. Personal income is 0.1% over budget, with withholding remaining over estimate. Sales tax collections are 3.2% below the downwardly revised fiscal 2007 estimate, and 5.3% below last year's level, reflecting weakness in consumer spending.

Ohio's economy continues to grow slowly, with employment up 0.4% in 2005 compared to 1.5% for the U.S. August 2006 employment was 0.4% above August 2005, compared to 1.3% for the U.S. Growth sectors include leisure and hospitality, up 1.9%, educational and health services, up 1.4%, and professional and business services, up 1.2%. Some sectors continue longer term reductions, with August 2006 retail employment down 1.2% and manufacturing down 0.8%. Manufacturing declines are driven by ongoing weakness among domestic automakers and parts suppliers. Further declines are likely with additional announced cuts by Ford Motor Company at two Ohio facilities, totaling up to 2,400 workers. Ohio's second-quarter 2006 personal income numbers are up 5.6%, compared to 7.3% for the U.S.; nonetheless, Ohio's second-quarter figure is well over the first quarter's 4.8% growth.

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.