FITCHRATESNEWHAMPSHIRE'S$44MMGOBONDS'AA+'

Fitch Ratings-New York-08 July 2010: Fitch Ratings has assigned an 'AA+' rating to the State of New Hampshire's general obligation (GO) refunding bonds consisting of:--$44.345 million 2010 series B.The bonds are expected to sell July 14 via competitive sale.Fitch also affirms the 'AA+' rating on New Hampshire's approximately $823 million outstandingGO bonds, including bonds of the Pease Development Authority guaranteed by the state. TheRating Outlook is Stable.RATING RATIONALE:--New Hampshire's economy had been strong and resilient when compared to surrounding statescoming into the economic downturn and strong growth is expected to return as the nationaleconomy recovers.--With no sales or income tax, the state's finances are dependent on an unusual mix of taxes -business taxes, real estate transfer taxes, cigarette and alcohol taxes, etc., which are economicallysensitive and have underperformed through the economic downturn.--The state takes timely action to maintain budgetary balance. State actions to balance the budgetinclude various revenue increases, expenditure reductions, fund transfers and bond issuance in lieuof paygo school building aid.--Debt levels are low, amortization is rapid, and net tax-supported debt is entirely generalobligation. Pension funding has declined dramatically over the past ten years, and may represent afuture spending pressure.KEY RATING DRIVER:State's continued ability to meet funding needs and maintain balanced financial operations within alimited revenue system that is susceptible to business cycles.SECURITY:General Obligation, full faith and credit of the state of New HampshireCREDIT SUMMARY:The 'AA+' reflects New Hampshire's economic strength and resiliency and conservative debtposition. New Hampshire's economy compared favorably to surrounding states coming into theeconomic downturn. These strengths are offset partly by the state's dependence on a variety of volatile taxes, which have not performed well in the current economic environment.New Hampshire's debt levels are low and debt amortizes quickly. All state debt is either GO orguaranteed, except for turnpike revenue bonds. Net tax-supported debt, including a $150 millionissuance expected later this summer, represents a low 1.7% of 2009 personal income, reflectingsomewhat the historically limited role of state government. The current offering is a refundingstructured to provide budgetary relief in the current biennium.Funding of the state's pension system has declined significantly over the past decade. As of June 30,2009 the state's pension system funded ratio was 58.3%, down from 89.9% in 2000. Improving itsactuarial position will present a future spending pressure.New Hampshire is a prosperous state that has shifted rapidly from manufacturing to services, as itseconomy has become more like the nation's. The state's population and job growth have generallyoutpaced New England's since 1980, benefiting from the expansion of Boston suburbs into NewHampshire and growth in the trade, transportation and utilities and other services sectors. The state

did not lose jobs year-over-year in the current downturn until December 2008 and employmentlosses remained below the national rate through the recession, with non-farm employment down3.4% in 2009 versus 4.3% nationwide. Job growth has resumed at a modest rate, up .3% in May2010 while the U.S. continues to show some losses at .4%. Although unemployment levels haveincreased significantly, the unemployment rate remains well below the national average at 6.4% inMay 2010 versus 9.7% for the U.S. Per capita personal income is 108% of the nation's, rankingNew Hampshire ninth among the states.New Hampshire's tax structure, specifically its lack of a personal income or general sales tax,differentiates it from all other states except Alaska and is a key influence on its economy andfinancial operations. The state relies on business, real estate, and excise taxes, as well as a statewideproperty tax dedicated solely to education. This unique tax structure is volatile, especially the taxeson business profits, which are vulnerable to swings in the business cycle, and on real estatetransfers, which are sensitive to housing market conditions.The enacted budget for the fiscal 2010-2011 biennium assumed minimal growth in base revenues,and used a combination of revenue enhancements, expenditure reductions, reserves and one-shots toachieve balance. Expense reductions included lay-offs, health benefit restructuring, and the closingof state facilities, including a prison and courts. The budget increased education spending by $120million to address State Supreme Court decisions regarding primary and secondary educationfunding. In 1997 the court placed the responsibility for adequate education on the state. The stateresponded with the statewide property tax, increases in various taxes, including cigarette and realestate, and a new car rental tax, among other revenue enhancements.Revenue enhancements in the fiscal 2010-2011 enacted plan included a 45 cent increase in thetobacco tax, a 1% increase in the meals and room tax and its expansion to campsites (an expansionsince repealed), a 10% tax on gambling winnings, and the expansion of the interest and dividendstax (an expansion also since repealed). Revenue sharing with local governments was reduced,saving the state $25 million per year. The budget assumed $22.5 million transfer in each year fromthe surplus in the medical malpractice fund, which will not take place due to a successful legalchallenge. The operating expenses of the liquor commission were moved from the general fund to aseparate enterprise fund and some assets of the liquor commission are to be sold.Despite all of these adjustments, a $295 million budget gap has been identified in the fiscal2010-2011 biennial budget and some uncertainty remains on both the spending and revenue side of the budget. The shortfall is due largely to revenues falling short of expectations, but also reflects the$45 million that cannot be transferred from the medical malpractice fund, as well as increasedcaseloads associated with the economic downturn. Revenues, which had begun to show signs of stabilizing at the end of the first half of the fiscal year in December, performed under expectationfor fiscal 2010 as a whole and are projected to fall $164 million short for the biennium. Estimatedrevenues for fiscal 2010 were essentially flat to fiscal 2009, but down an estimated $84.8 million, or3.8%, below plan. Business taxes are down 4.3% year-over-year and are 6.1% below plan. Mealsand rooms tax revenue is up 9.2% year-over-year, reflecting the increase in the rate, but is 8.5%below plan. Tobacco taxes, which also were increased in the budget, are up 24% and are 10.4%above plan.In response, the legislature enacted a deficit reduction plan that includes $82 million in spendingreductions, additional lapses and fund transfers, debt restructuring, a $25 payment from theuniversity system and other smaller revenue and spending items. The university system will alsoreceive $25 million in additional bonding capacity. Some uncertainty remains in the budget as thegap closing measures also include an assumption that the enhanced federal match for Medicaid(FMAP) will be extended as well as $60 million in as yet unidentified asset sales.Applicable criteria available on Fitch's website at www.fitchratings.com:--'Tax-Supported Rating Criteria', dated Dec. 21, 2009;--'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009.Contact: Karen Krop +1-212-908-0661 or Laura Porter +1-212-908-0575, New York.