Fitch Rates Vermont's $30MM GOs 'AA+'.

NEW YORK -- Fitch Ratings assigns an 'AA+' rating to the state of Vermont's $30 million general obligation (GO) bonds, 2005 series D. The bonds are expected to sell competitively on Nov. 15 and will be due July 15, 2006-25, and they may be called at par on or after July 15, 2015.

Vermont's conservative approach to debt and financial operations provides a strong foundation for high credit quality. During the protracted recession of the early 1990s, the state assiduously followed an austere recovery program, demonstrating its willingness to take action for stability. Following recovery, reserves were fully funded and substantial amounts were used for capital purposes, allowing debt to decline. Rapid response to changing conditions has continued. With the weakening economy in 2001-02, reserves were again tapped and appropriations reduced to maintain balance. Operations subsequently have been favorable and the reserves were quickly re-built.

Vermont's economy is reliant on health and educational services and tourism, although manufacturing remains important. Manufacturing employment declined about 19% from 2000 to 2003, before leveling off in 2004, yet this loss was offset by resiliency in other sectors of the economy, keeping total employment virtually unchanged over that period. Overall employment growth resumed in 2004, with employment up 1.3% and September 2005 employment was 1.5% ahead of September 2004, led by strong gains in construction and professional and business services. Per capita personal income rose from 91% of the U.S. level in 1996 to 97% in 2004 and now stands at $32,063, ranking 23rd among the states.

Financial operations were successful in the late 1990s and reserves were fully funded to 5% of prior year appropriations in each of the general, transportation, and education funds. However, as the economy slowed during fiscal 2002, revenues fell, and despite expenditure measures, over half of the general fund reserve was spent. In fiscal 2003 revenues recovered to meet estimates, and in fiscal 2004, a $57 million general fund surplus was recorded, allowing for full replenishment of reserves. Fiscal 2005 finished with a $54 million surplus in the general fund, allowing for some additional spending and a nearly $20 million carry-over.

Through September of fiscal 2006, general fund revenues are up 11.3% over last year and are $16.6 million over estimates, which had been revised upwards in July. Personal income taxes are slightly below projections, while most other revenues are ahead. Transportation fund receipts are sluggish, and the emergency board authorized a $5 million transfer from the fiscal 2005 overage.

Virtually all of Vermont's debt is GO, and it amortizes rapidly. Including this issue, net tax-supported debt is low to moderate at $470 million, or $757 per capita, and 2.5% of personal income. Debt has declined since the 1990s as a result of debt affordability recommendations, and debt levels are now expected to remain stable. Vermont's pension systems remain well funded.

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