Oregon GO Baccalaureate Bonds Rated AA by S&P.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/19/98-- Standard & Poor's today assigned its double-'A' rating to Oregon's G.O. baccalaureate bonds series 1998D, 1998E, and 1998F.

In addition, Standard & Poor's affirmed its double-'A' rating on Oregon's outstanding G.O. bonds.

The ratings reflect:

-- The state's growing and diversifying economic base,

-- Strong overall revenue performance that has largely offset increased costs of funding education, and

-- A manageable debt burden despite additional capital needs associated with growth.

Oregon (population 3.2 million) has generally benefited from strong revenue performance resulting from its growing economy and expanding population and labor force. Growth trends have outpaced the national average for most of the past decade with the in-migration of workers seeking better economic opportunities and a more affordable cost of living. The state also has continued to diversify away from a heavy reliance on timber and agriculture to a broader mix of high technology, service, and international trade sectors. The service sector currently represents 26% of nonfarming employment, trade (25%), government (17%), and manufacturing (16%). With the state's location on the Pacific Rim and diversification into high technology, export-oriented markets, Oregon has some vulnerability to the Asian financial crisis. Oregon's September 1998 economic forecast now expects the state's growth rate to be closer to the national average during the next two years, and expects the state to avoid a recession as long as the national economy remains strong.

Figures from 1996 indicate that Asian exports make up about 6.3% of Oregon's gross state product, which lags Washington state's 8.7% but is ahead of California at 5.3%.

Financially, this forecast translates into reduced revenue estimates from the June forecast with general fund revenue of $8.4 billion for the 1997-1999 biennium, a decrease of $216 million from the June 1998 estimate but $131.6 million higher than the 1997 close-of-legislative session estimate. The current forecast includes a reduction in revenue (as a result of an Oregon Supreme Court decision that ruled that the state's taxation of federal pension income was illegal) and an increase in personal income tax collections due to a surge in capital gains income earlier in the year. Lottery revenues continue to outpace earlier estimates with the current forecast increasing lottery revenues by $3.2 million for the 1997-1999 biennium.

The state ended fiscal 1997 with an audited GAAP-basis unreserved general fund balance of $307 million (9% of expenditures). Based on the September 1998 revised revenue estimates and assuming expenditure projections hold, the general fund 1997-1999 budget-basis ending fund balance would be $395.6 million -- $208.7 million below the June 1998 forecast but still $327 million above the close of session forecast. Most of the reduction from the June forecast reflects the effect of the Supreme Court decision on the taxation of federal pension income.

These estimates also incorporate the state's replacement of lost property tax revenues for public schools under Measure 50 and income tax credits and refunds under the state's 2% surplus tax relief legislation.

OUTLOOK: STABLE

The outlook reflects the diversification that has taken place within the economic base and the expectation that the state will maintain satisfactory reserve levels despite expenditure pressures and the potential for slower growth, Standard & Poor's said. -- CreditWire