Fitch Rates Texas Public Finance Authority's $239.4MM Refunding GOs 'AA+'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns a rating of 'AA+' to the Texas Public Finance Authority (TPFA) approximately $239.4 million State of Texas general obligation (GO) refunding bonds Series 2008 expected by negotiation the week of Sept. 17, 2007 The bonds will be sold through a syndicate led by UBS Investment Bank. The bonds are due Oct. 1, 2008-2012 and 2015. The bonds will be delivered on the forward delivery date on or about January 3, 2008. Other details will be determined upon final negotiation. Also affirmed is the 'AA+' rating on $9.7 billion outstanding GO bonds. The Rating Outlook is Stable.

TPFA acts as issuer of certain state GO bonds, including the new bonds, which are payable from the state's general fund. The 'AA+' rating on Texas GO bonds including the TPFA GO bonds, reflects the state's low debt, 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. The general fund remains vulnerable to longer term shortfalls arising from property tax relief in the form of increased state funding of school finance, although resolved for the fiscal 2008-2009 biennium. The Stable Outlook reflects the state's strong economic and revenue growth and satisfactory balances.

Pursuant to the state constitution, the bonds now offered are GOs and are payable from constitutional appropriations out 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. The State of Texas' debt remains low in relation to resources. Net tax-supported debt of $10.2 billion is equal to $433 per capita and 1.3% of personal income. Most debt is GO, with the bulk of GO considered self-supporting, including water loans, the veterans' loan program, and loans to college students. Debt levels are rising with issuance of $4 billion in GO bonds for transportation purposes.

The Texas economy has enjoyed strong growth in recent years with gains since 2004 ahead of the nation. Employment rose 2.7% in July 2007 from a year earlier. Personal income growth also has been strong, rising 7.2% in the first quarter of 2007, compared to 5.8% nationally. Consolidated general revenue fund 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 $9.2 billion with an additional $405 million in the economic stabilization fund. Revenues for the first eleven months of fiscal 2007 are exceeding estimates. The sales tax, Texas' main revenue source, is up 10.7% for eleven months of fiscal 2007 through July 31, 2007 from the same period last year and is 8.4% over forecast. Oil and gas tax collections, projected to decline from a year ago, are slightly ahead of forecast with the decline now expected to be around 17%. The projected fiscal 2007 ending balance of $8.17 billion is up from $3.7 billion as originally estimated. Biennial revenue estimates for 2008-09 project moderate growth in the sales tax of over 4% in each of fiscal years 2008 and 2009.

During a 2006 special legislative session the state finalized a major reform of the school funding system, in response to a 2005 state supreme court ruling that found certain aspects of the system unconstitutional. The reform package lowered local property taxes and increased state education support to approximately 50% by fiscal 2008 from 36% in fiscal 2006. The reforms are being funded through new tax revenues, broadening taxes on business, raising the motor vehicle sales and use tax for used vehicles, and raising cigarette taxes. These sources are projected to generate $8 billion for the property tax relief fund for the 2008-2009 biennium although requirements are projected at $14.2 billion; the difference is to be made up from accumulated surplus.

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