Fitch Rates State of Nevada $19.9MM Lease Rev COPS 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $19.945 million Sate of Nevada lease revenue certificates of participation (Casa Grande Project) series 2004B to be offered Sept. 23 through Lehman Brothers. The certificates mature serially April 1, 2005-2031. Details to be determined.

The certificates are payable from state lease rentals subject only to appropriations. The rating reflects the state's broad and high level involvement in the project and financing as well as the state's credit.

The certificates will fund the construction of a 400-bed transitional residential facility. The primary occupant will be the Nevada Department of Corrections, although the obligation to make lease payments rests with the State of Nevada, subject to appropriation. This facility is the first of its type in the state.

Broad and deep state participation is evidenced. The financing lease is signed by the Governor and the state treasurer is president of the not-for-profit corporation which is the lessor and issuer of the certificates. The Treasurer will use reasonable best efforts to obtain the funds necessary to make lease payments. The lease was also approved by the State Board of Examiners, which approves state contracts/debt transactions, and the Board of Finance which includes the Governor, Treasurer and Comptroller.

The State of Nevada's general obligation bonds are rated 'AA+'. The rating reflects sound debt and financial positions, as well as the continued growth and development of the economy. Because so much of its debt is self-supporting, debt ratios are very moderate, with net tax-supported debt of about $1.6 billion equal to $810 per capita, 0.8% of estimated full value, and 2.3% of personal income. Financial operations have been well maintained with consistent surplus, but the lingering effects of the recession and Sept. 11 caused two successive fiscal years, 2002 and 2003, of revenue shortfalls. Appropriations have risen as well, and an impending deficit for the biennium that ended June 30, 2003 was avoided by using the balance in the stabilization reserve as well as other measures, including expenditure reductions. The first $50 million in general fund balance at June 30, 2005 that is in excess of projections will be applied to rebuilding the reserve.

To address future gaps, the governor recommended tax increases and, after protracted deliberations, a tax package was enacted that is estimated to provide $836 million additional revenue during the current biennium. The fund balance is expected to increase annually over the next two years. Fiscal 2004 collections rose ahead of estimates with the newly enacted revenues approximating estimates, although a tax on live entertainment has lagged projections. Pre-existing taxes are about $96 million over estimates.

Nevada was the most rapidly growing state in the 1990s. Its economy differs from the other states, as it is geographically concentrated in Clark County (Las Vegas) and its foundation is gaming, although now broadened to be better described as entertainment. Investment in Las Vegas has been considerable and recently built facilities have been dubbed mega-resorts and their offerings continue to broaden leisure choices, including shopping malls, in addition to the traditional casinos. Employment has tended to match population expansion. Revised figures indicate that Nevada did not lose jobs in the recent downturn. In 2003, employment rose 3.4% and in recent months, by more than 4%.

The appeal of Las Vegas, especially with the increasing diversity of its numerous entertainment attractions, is expected to remain strong despite the trend toward more numerous legalized gaming venues. The events of Sept. 11 together with the national recession had an effect on the state's tourism. Visitor volume in Las Vegas in 2001 was about 2% below 2000 and flat in 2002, and hotel occupancy rates declined from 89% to 84%. However, growth returned in 2003, with a 1.3% increase and for the first six months of 2004, the gain was 7.5%, and the occupancy rate has returned to over 89%. Reno has been somewhat more affected, with 2003 visitors down over 6% from 2000 and occupancy at 70%.