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Fitch Rts Utah's $348.12MM GO Refunding Bonds 'AAA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 29, 2004

Fitch Ratings assigns a 'AAA' rating to the State of Utah's $348.12 million general obligation refunding bonds, series 2004A. These bonds are expected for negotiation the week of Feb. 2 through a syndicate managed by Goldman Sachs & Co. The 'AAA' rating on the $1.54 billion outstanding general obligation bonds is affirmed. The new bonds, entirely for refunding purposes, will be due July 1, 2004-16, optionally callable at par beginning July 1, 2014.

The quality of Utah's credit standing has historically reflected the small amount, very short life and modest burden of debt, as well as the state's conservative financial stance despite the continuing revenue weakness. Rapid and sustained growth through the 1990s increased capital needs and spending, particularly for transportation, and the current revenue weakness is also causing an increasing shift of the traditionally large amounts of pay-as-you-go financing to bonding.

Although ratios have more than doubled since fiscal 1997, they remain in the moderate range with net tax-supported debt of $1.93 billion equal to $864 per capita, 1.1% of estimated full value and 3.5% of personal income. The state has preserved the seven-year amortization for general building bonds, and the fifteen-year period for highway debt, now about 80% of the total, is rapid considering the life of the assets. Overall, about 82% of general obligation and lease debt is due within ten years, a very rapid payback schedule.

Rapid economic growth, occurring for more than 15 years, ended precipitously by the end of fiscal 2001, due to the coincident effect of problems in the information technology and tourism sectors, the national recession, and the wind-down of the 2002 Winter Olympics. After more than a decade of annual employment gains ranging from 2.4%-6.2%, employment rose only 0.9% in 2001 and declined 1.5% in 2002, essentially at the 2000 level.

Employment growth began in the fourth quarter of 2003. In December 2003, when compared with the same month in the prior year, employment was up 0.9% and was 0.5% above 2001's prior peak. While manufacturing continued its decline, construction was stable and all other sectors showed gains. Growth in personal income also slowed sharply in 2002, and per capita income of $24,157 reduced the state's ranking to 46th. The state is benefiting from the recent increase in defense spending, expected to continue.

The abrupt cessation of economic growth had an immediate financial impact. The state was faced with revenue shortfalls of 10% in fiscal 2002, and nearly 7% in fiscal 2003, maintaining balance through spending cuts, use of transfers and balances including almost all tobacco settlement trust funds, and near depletion of the budget reserve.

While fiscal 2003 was balanced, aided by federal fiscal relief, and closed with the budget reserve increased to $26 million, the individual income and sales tax collections lagged original estimates by 6% and 1.5% respectively. Continuing weakness in revenue collections was evident in the near flat base revenue expectation for the current year, which is at the fiscal 2000 level. Collections through six months were above the 1.4% annual growth required, although the sales tax continues to lag. Fiscal 2004 appropriations include a $25 million transfer to the reserve.

The governor's proposed fiscal 2005 budget is essentially at the fiscal 2001 level. It incorporates about $100 million of proposed tax adjustments and redirections, including $30 million from quarterly filing of estimated taxes, nearly $40 million from redirection of sales taxes from highway and water, and $10 million inheritance tax decoupling. Finances are conservatively managed and maintained, with a long history of timely adjustments. The state has been assiduous in taking measures, as required, to maintain budgetary balance in light of continuing failure of revenues to meet estimates.
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Publication:Business Wire
Date:Jan 29, 2004
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