Fitch Rates Texas Public Finance Auth $214.4MM GO Rfdg Bonds 'AA+'.

NEW YORK -- Fitch Ratings assigns a rating of 'AA+' to the Texas Public Finance Authority (TPFA) $168,235,000 State of Texas General Obligation (GO) Refunding Bonds Series 2006A and $45,340,000 State of Texas GO refunding bonds series 2006B expected by negotiation as early as Nov. 21, 2006 through a syndicate led by Lehman Brothers and Citigroup. Each series of bonds is due October 1, 2007-2026 and are callable at par beginning Oct. 1, 2016. Other details will be determined upon final negotiation. Also affirmed is the 'AA+' rating with stable outlook on $8.6 billion outstanding GO bonds.

TPFA acts as issuer of certain state GO bonds, including the new, payable from the state's general fund. The 'AA+' rating on Texas GO bonds reflects the state's low debt and conservative financial operations and an economy that has expanded and diversified. Financial pressures include the demands that rapid growth place on the state's consumption-based tax system, large transportation needs, and remedial actions necessary to accommodate future funding shortfalls as the state enlarges funding of school finance to provide local property tax relief. The Stable Outlook reflects the state's strong economic and revenue growth and sizeable balances.

The state of Texas' debt remains low in relation to resources but is rising following the recent issuance of $2 billion of debt for highway projects. Net tax-supported debt is $8.9 billion, equal to $389 per capita and 1.2% of personal income. Most debt is GO, with close to two-thirds considered self-supporting. Pursuant to the Constitution, GO bonds are payable from constitutional appropriations of the first moneys coming into the state treasury not otherwise appropriated ($32.7 billion in fiscal 2006) in an amount sufficient to pay principal and interest. Net tax-supported debt excludes self-supporting bonds issued for water loans, the veterans' loan program, and loans to college students. The proceeds of the series 2006A and 2006B bonds will be used to refund outstanding commercial paper.

Texas has undertaken a major reform of the school funding system, after certain aspects of the system were ruled unconstitutional by the state supreme court in November 2005. The legislature enacted a reform package in a special session in May, lowering local property taxes, shifting additional education spending to the state, and raising teacher salaries. The new commitments will be funded largely by surplus resources in fiscal 2007. Going forward, the legislature funded much of the reform through new tax revenues, broadening taxes on business, raising the motor vehicle sales and use tax for used vehicles, and raising cigarette taxes. Nevertheless, future funding shortfalls are projected, with further balancing actions required as the state's funding of school expenses increases approximately 50% by fiscal 2008 from 36% in fiscal 2006. The large general revenue fund cash balances are sufficient to fund requirements through the current biennium ending Aug. 31, 2007. Revenues of $64.7 billion in fiscal 2006 rose 10.2% above fiscal 2005, led by strong growth in sales, franchise, and oil and natural gas production taxes. The ending cash balance on Aug. 31, 2006 was a strong $9.1 billion. Revenues for the first two months of fiscal 2007 are exceeding estimates. Ending cash balance on Oct. 31, 2006, excluding $4.6 billion tax and revenue anticipation notes, was $2.9 billion with another $1.9 billion held in the economic stabilization fund.

The Texas economy has enjoyed solid growth in recent years. Employment rose 2.5% in 2005, compared to 1.5% for the U.S. Employment rose 2.2% in September 2006 compared to a year earlier, above the 1.4% U.S. gain over the period. Personal income growth has also been strong.

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.