Fitch Rates Oregon's $55.6MM GO's 'AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 16, 2002

Fitch Ratings assigns 'AA' to Oregon's State Board of Higher Education, general obligation, baccalaureate bonds, including $47,744,004.45 2002 Series A, $738,748 2002 Series B and $7,105,000 2002 Series C and affirms the 'AA' rating on $2.2 billion outstanding general obligation bonds. The new bonds, expected October 30, through negotiation with a syndicate led by Salomon Smith Barney, are for refunding purposes. Series A and C will include current and deferred interest bonds while series B will be mini deferred interest bonds. They will mature on October 15; specific maturities and call provisions are yet to be determined.

Oregon's 'AA' general obligation rating is based on its low level of tax-supported debt and the economic expansion and diversification that occurred during the 1990's, enabling successful financial operations and absorption of mandated school financing costs. Weakness in the technology sector and in Asian economies together with the effects of September 11 have disrupted the state's growth and created significant financial pressure. The budget for the current biennium, ending June 30, 2003, has been re-balanced in a succession of special legislative sessions but perhaps the most important component, an income tax surcharge, must be approved by the voters. Stabilization of the economy and the ability to levy the surcharge will be crucial to future credit evaluation.

More than half of Oregon's debt is self-supporting from revenues of various programs, of which the largest is for veterans housing loans. Consequently, the state's net tax-supported debt is low, at $1.8 billion or $518 per capita, 0.6% of estimated full value and 1.8% of personal income General purpose debt has been increasing, however, as Oregon has grown, and has been funded from non-general obligation sources such as appropriations or lottery revenues and this trend can be expected to continue.

After a decade of vibrant growth, slowing became evident and employment losses were incurred, with the total in August 2002 a little more than 2% below the 2000 level. Manufacturing and construction have been affected the most. The current forecast assumes the economy is at the bottom, with growth expected to resume in 2003 but many uncertainties remain.

The weaker economy and the precipitous drop in capital gains, options, etc. income quickly caused the 2001-03 budget to become unbalanced; an additional factor was the requirement to make refunds since collections in 1999-2001 exceeded specified limits. The September forecast projected revenues at 15% below the budget expectations. Balancing actions include roughly equal amounts from tax increases, expenditure cuts and non-recurring sources. Voters have already approved partial use of a special fund and a cigarette tax increase, as well as a rainy day reserve, but the major revenue action, a temporary income tax surcharge will be on a January ballot.

The Oregon Supreme Court has found Ballot Measure 7, approved in 2000, to be unconstitutional. The measure would have required state and local governments to reimburse property owners for reductions in property values resulting from use regulation. While potential cost to the state was uncertain, it could have been substantial.