PRESS RELEASES

March 7, 2006 -- Mayor Bill White today expressed concern about one bond ratings agency's downgrading of its outlook for City of Houston bonds to "negative" as a result of a court decision on Proposition 2.

Fitch Ratings maintained its strong bond rating for the City at "AA-, " but downgraded its outlook from "stable" to "negative," citing "increased uncertainty in general fund operations," due to a lawsuit against the city over "Proposition 2. " Proposition 2 was a November 2004 ballot initiative that targets combined revenues of essentially all city operations and has the potential to more severely restrict revenue growth. The City maintains that Proposition 1, which places restrictions on the growth in property tax revenues, is legally binding under the City Charter, not Prop. 2, which garnered fewer votes.

"This is a wake-up call and we all need to be concerned about this downgrade," said Mayor White. "It confirms the case we've been making that Prop. 2 can end up costing taxpayers more money in increased borrowing costs. We need to resolve it."

A district court ruled recently that the city must implement both Proposition 1 and Proposition 2. The City is appealing that ruling.

"The prospect of implementation of both measures has the potential to negatively affect service delivery and capital financing.," said Fitch's summary of its rating.

Proposition 2, the summary said, is "cause for additional concern, and Fitch considers its possible implementation as a potential challenge to the city's credit quality, given ongoing and future spending pressures.

Fitch said its 'AA-' rating reflects positive credit considerations, which include a resilient, broad economy, a moderate direct debt burden, and recent growth in general fund reserves.

"The rating shows what can happen if we manage the city's budget in a responsible, fiscally conservative manner," said Mayor White. "But the outlook downgrade shows the costs of Proposition 2, which jeopardizes funding for public safety when water use rises during dry years."

Two other bond rating agencies, Standard & Poors and Moody's, issued ratings of "AA-" and "Aa3", respectively. S&P added a "positive" outlook and Moody's issued a "stable" outlook.