Fitch Ratings assigns an 'AA-' rating to the approximately $24.245 million Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA) revenue refunding bonds (BRCC Facilities Corporation Project), series 2012.

The bonds are expected to sell via negotiation the week of March 26, 2012.

In addition, Fitch affirms the following ratings:

--Approximately $2.8 billion in outstanding Louisiana general obligation (GO) bonds at 'AA';

--Approximately $497.8 million in outstanding Louisiana appropriation backed bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The series 2012 bonds are special obligations of the LCDA, payable from funds received by the LCDA through the BRCC Facilities Corporation (the corporation) from the Board of Supervisors of the Community and Technical College System (the board) under the enabling financing documents. Such payments are received by the board subject to annual appropriation of the state legislature. Source of payments is appropriations from the state's general fund.

KEY RATING DRIVERS

STATE APPROPRIATION: The rating on the bonds is based on the credit quality of the state, whose GO bonds are rated 'AA', as bonds are secured by annual legislative appropriations from the general fund, pursuant to a cooperative endeavor agreement.

COMMODITY-BASED ECONOMY: The state's commodity-based economy, heavily linked to oil and gas production, has modestly diversified although one-third of the state's gross state product continues to derive from the production and delivery of raw and intermediate goods.

SOLID FINANCIAL MANAGEMENT BUT SIZABLE BUDGET GAPS CONTINUE: Financial management has been solid. The state took prompt action to address projected shortfalls following the severe impact of hurricanes Katrina and Rita in 2005 and through the recent downturn. Increasing costs largely related to education and Medicaid, and the use of one-time money in fiscal year (FY) 2012, has created an $895 million budget gap for FY 2013 that the governor has proposed eliminating through ongoing spending reductions and $230 million in one-time revenue.

MODERATE DEBT SUPPORTED BY STRONG LEGAL PROVISIONS: Debt levels are moderate and debt issuance is well controlled by policy. There are strong legal provisions for GO debt, with all non-dedicated revenues flowing into the bond security and redemption fund to provide for debt service prior to operations.

WEAK PENSION FUNDING LEVELS: Funding of the state's two largest pension systems is below average and has been declining. In the executive budget for FY 2013, the governor has proposed pension reform measures to reduce the unfunded actuarial accrued liability.

WHAT COULD TRIGGER A RATING ACTION

Changes in Louisiana's 'AA' GO rating, to which this rating is linked.

CREDIT PROFILE

The series 2012 bonds are issued through the LCDA pursuant to a cooperative endeavor agreement (the agreement) between the state, the board (responsible for supervision and management of the state's post-secondary community and technical colleges under the state Board of Regents), and the corporation (a not for profit corporation organized to construct the facilities). The debt is authorized by Louisiana's constitution and the agreement provides for the state's pledge of annual appropriations, securing rental payments under a lease between the board and the corporation and a loan agreement between the LCDA and the corporation. The rental payments have been assigned by both the corporation and the LCDA to the trustee for the benefit of bondholders.

The state has other such agreements in place that support debt obligations, primarily for economic development and higher education purposes. Oversight and control mechanisms are in place and the state division of administration, party to the agreement on behalf of the state, covenants to seek appropriations for debt service funds annually. Approval of the state bond commission, consisting of the state's major elected officials is required. The current issue refunds the last remaining maturity of the series 2002 bonds for debt service savings.

Louisiana's 'AA' GO rating reflects the sound financial management demonstrated by the state since the hurricanes of 2005 and through the recent recession, including a focus on spending control and maintenance of still solid reserves. State debt levels remain moderate, while the funding levels for the state's two largest pension systems are below average. There are strong legal provisions for GO debt, with all non-dedicated revenues flowing into the bond security and redemption fund to provide first for debt service. The state's GO rating also recognizes the state's economic concentration in the volatile energy industry. Louisiana's economic recovery has been steady, with year over year (y-o-y) employment gains since December 2010, currently surpassing the national average.

With prudent fiscal management following the devastation caused by Hurricanes Katrina and Rita in 2005, the state maintained sizable financial balances and realized exceptionally strong revenue collections, bolstered by high oil and gas and hurricane recovery-related revenues. Steep revenue declines in FY 2009 and 2010 reflected the impact of the economic downturn and significant tax cuts enacted in prior years. The general fund (GF) budget for fiscal 2010 was reduced three separate times to meet deteriorating revenue estimates, with ending state-source revenue a decrease of 24% from fiscal 2009. Overall, FY 2010 ended with a $591 million general fund operating deficit (budgetary basis) despite the use of $198 million from the rainy day fund.

Balanced GF operations in FY 2011 produced a $264 million operating surplus (budgetary basis) and most major tax revenues showed improvement. The rainy day fund, which was reduced in FY 2010 to $645.2 million, remained at a comparable level at the end of the fiscal year, $646.8 million. FY 2011 also marked the second year that the state received funds from BP related to the Gulf oil spill. These payments have been directed to the construction of barrier island berms, to increase tourism, to repay state agency costs, as well as other assessment and monitoring costs, and should offset state costs associated with the oil spill. Approximately $116 million was received in FY 2010 and $237 million was received in FY 2011.

The adopted budget for FY 2012 closed a $1.5 billion budget gap, partly attributable to the falloff of federal stimulus funds, through spending reductions and about $340 million in one-time revenue; there were no revenue-raising measures taken. A mid-year budget gap of about $254 million was identified in December 2011 as a result of a previously overly optimistic forecast of personal income tax (PIT) receipts, an increase in oil and natural gas production that has been increasingly tax-exempt due to the extraction measures utilized, and increased costs related to formulaic education spending. The governor reduced GF expenditures by a like amount and the state anticipates ending the current fiscal year with balanced operations, and reserves are expected to remain unchanged.

The governor's budget proposal for fiscal 2013, which was released in February 2012, is based on a consensus general revenue estimate of $8.4 billion, up 4.2% compared to the revised forecast revenue for fiscal 2012. To address a forecast deficit of $895 million in fiscal 2013, the governor's executive budget proposes $701 million in on-going spending reductions and $195 million from maximizing the use of dedicated funds rather than GF revenues for programs. One-time revenues of $230 million are part of the recommendation. Ongoing measures include additional agency cuts in 2013, the passage of pension reform measures to save $55 million in FY 2013, extensive Medicaid reform that is expected to save $136 million in FY 2013, and an average 2% cut to Medicaid service providers. The proposed budget includes no revenue raising proposals.

Louisiana's economy is resource-based as a major producer of oil and gas, and much of its manufacturing is dominated by petroleum and chemical production. According to the state, the state ranks first in crude oil production in the U.S. when including production from the Outer Continental Shelf (OCS) and ranks second in the nation in natural gas production when including the OCS. The state estimates that approximately one-third of the state's gross state product is connected to the production and delivery of raw and intermediate goods. Tourism is also important, and the port system is among the largest in the world. Flood protection in the New Orleans area has been enhanced; however, the state remains vulnerable to severe storm activity.

The state has had some recent success with economic development efforts that support diversification. Following the 2005 storms, state employment dropped in 2005 and 2006 but then rose steadily until December 2008 when the state entered the recession. The state's recovery from the recession has been steady, with monthly y-o-y employment growth since December 2010, and all sectors registered positive y-o-y growth in January 2012. Employment growth in January 2012 was above that of the nation, with 2.4% y-o-y growth compared to 1.5% for the nation. Mining experienced the largest y-o-y increase at 6.8%, followed by education and health services (5.3%), and professional and business services (4.2%). Louisiana's unemployment rate remains below that of the U.S. at 6.9% in January 2012 compared to 8.3% for the nation, but is still above historical averages. Quarterly personal income trends have been positive, with y-o-y growth rates that have surpassed the nation and region, and per capita income as a percentage of the U.S. was 93% in 2010.

Before Hurricanes Katrina and Rita, the 1.3 million people residing in the New Orleans metropolitan area made up nearly 30% of the state's population and about one-third of state employment. Following the hurricanes, there were large population losses in New Orleans and a considerable population shift within the state. East Baton Rouge is now the largest parish in the state, having experienced almost 40% population growth between 2000 and 2010. The 2010 Census population for the state was 1.4% above the level in 2000, compared to 9.7% growth for the U.S. population in this period, reflecting this dynamic. Following several years of population out-migration, this trend has reversed and the Census reports four consecutive years of in-migration.

State debt levels remain moderate, equaling about 3.9% of 2010 personal income. By policy, debt issuance is well controlled. Funding of the state's two largest pension systems is below average and has declined. The state employees' pension system had a funded ratio of 57.6% and the teachers' system was at 55.1% as of June 30, 2011. Using Fitch's more conservative 7% discount rate assumption, funded ratios for the plans decline to 50.4% and 48.2%, respectively. The state's payments to these systems in fiscal years 2010 and 2011 were below the actuarially required contribution (ARC) primarily as a result of a timing lag between the determination of required contribution rates and state payrolls that had diminished through headcount reduction.

In his FY 2013 budget proposal, the governor has recommended several reforms to the pension systems which would reportedly reduce the systems' unfunded actuarial accrued liabilities by $500 million and reduce the state's contribution to the systems by $55 million in FY 2013. The proposal includes increasing employee contribution rates by 3%; increasing the retirement age for current employees under the age of 55 from 55 to 67; increasing the calculation of average final salary from three years to five years; and mandating a cash balance pension plan that would combine elements of both a defined benefit and a defined contribution system. Fitch believes it is too early to predict the outcome of this proposal.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;

--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897

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