CHICAGO ­— Buoyed by strong revenue collections heading into a new fiscal year, Ohio will issue $303 million of general obligation bonds in a competitive sale set for next Wednesday to raise money for school projects.

The Buckeye State is enjoying an unexpected uptick in revenues and could end its fiscal year with its largest surplus in years.

But litigation blocking Gov. John Kasich’s $1.2 billion, high-profile privatization of the state’s liquor distribution system could eat up the surplus if it’s not resolved by the end of June.

All three major rating agencies affirmed Ohio’s high double-A ratings ahead of the deal. The sale includes $280 million of common schools GO bonds that mature in 2032 and $23 million of natural resources GOs with a 2027 final maturity.

Ohio borrows frequently, but with relatively modest issues. It last entered the market with GO bonds in March, paying interest rates ranging from 4% to 5%.

One of the first states to enter the Great Recession, Ohio’s economy appears to be recovering more quickly than other Midwestern states. Its growth for the past year has been driven largely by manufacturing, said Fitch Ratings analyst Marcy Block.

“The state had a very large manufacturing presence, and the data we’ve looked at shows the recovery very strong in that area,” Block said. “The question is, will it continue, and will that help strengthen the economy?”

The manufacturing sector has grown 3.2% in fiscal 2011 compared to 2010, with a 4.3% jump in the durable goods area. The health care and service sectors are also growing, Block said.

State budget officials recently said Ohio was on track to end the current fiscal year with a $153 million surplus, while other officials have estimated it could be as large as $400 million.

Top budget officials have warned lawmakers that any surplus revenue could be swallowed by a lawsuit that is blocking implementation of the state’s plan to privatize its liquor distribution system by leasing it for 50 years to a newly created private nonprofit entity called JobsOhio.

The privatization is key to balancing the current two-year budget, which relies on a $500 million cash payment that the state was to deposit into its general fund this fiscal year.

“I know that revenues have come in very strongly this year, but as of right now, they had budgeted the full amount in this fiscal year,” Block said. “So even if revenues are up, I don’t know if they’re up enough to compensate for it.”

Columbus-based nonprofit ProgressOhio and two Democratic legislators filed the lawsuit, which argues the Ohio cannot invest in private funds. The case is currently before the Court of Appeals after the state successfully fought it on the issue of standing, saying the opponents had not suffered sufficient harm to bring the lawsuit.

Officials say they would have to tap the surplus revenues, plus the rainy-day fund, which currently totals $249 million, and possibly implement more cuts to offset the loss of the anticipated liquor revenue.

Through April, Ohio’s tax receipts were 2.3% over budget and 6.4% over the previous year, according to Moody’s Investors Service, which rates the state Aa1 and boosted its outlook to stable from negative in March, ahead of its last GO sale.

“The recent stabilization of Ohio’s economic performance was a significant driver in the state’s recent outlook revision,” Moody’s analyst Baye Larson wrote in a rating report on this week’s deal.

Ohio has $7.8 billion of outstanding GOs. Kasich recently signed a $1.7 billion capital budget through 2014 with $1.3 billion of debt. But debt service is not expected to see a big jump, as $1.5 billion will mature within the next two years, Fitch noted.

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