Fitch Ratings has assigned an 'A-' rating to the following general obligation (GO) bonds of the --
In a release on
In addition, Fitch has affirmed the 'A-' rating on approximately
The Rating Outlook remains Negative.
--Direct general obligation, full faith and credit of the state of
Key Rating Drivers
Budget Temporarily Stabilized with Tax Increase: Temporary increases in both the personal and corporate income tax rates, coupled with statutory spending limits, have closed a significant portion of the structural gap in the state's budget through the current fiscal year 2014.
Need for Long-Term Solution Remains: Due to the temporary nature of the enacted tax increases, the state will need to find a more permanent solution to the mismatch between spending and revenues. The negative outlook reflects the critical need to address this issue.
Large Balance of Deferred Payments Remains: The state has a large general fund accounts payable backlog, which although reduced still totaled
Action on Pensions: Recent passage of pension reform legislation was a positive indication of the state's willingness to take action on this complicated issue after many failed attempts. Legal protection of pension benefits is particularly strong in
Economy Strong but Recovery Slow: The state benefits from a large, diverse economy centered on the
Maintenance of the 'A-' rating will require timely action in advance of the expiration of temporary tax increases in fiscal 2015. Deterioration in the state's financial position, as evidenced by excessive use of non-recurring revenues or additional payment deferrals, would likely lead to a downgrade. In addition, stabilization of the rating will reflect the extent to which pension reform enhances the funding levels of the pension systems and controls the growing impact of pension payments on the budget.
The 'A-' rating and Negative Rating Outlook for
A key remaining near-term challenge is the need for timely action on a more permanent budget solution to the structural mismatch between spending and revenues in advance of the expiration of temporary tax increases. Temporary increases in both the personal and corporate income tax rates that have been supporting the budget since 2011 are scheduled to begin to phase out beginning
High Long-Term Liabilities
As of the most recent actuarial valuation, dated
Pension reform is expected to both reduce unfunded liabilities and temper the growth in pension payments required by the state. Fitch believes the enacted reforms would provide a substantial improvement in the funding scheme for the state's pensions by moving to a closed ARC funding schedule with a goal of 100 percent funding (versus the prior statutory plan that only targeted 90 percent funding) and requiring significant payments above what the ARC would indicate once outstanding series 2010 and 2011 pension obligation bonds mature. Fitch has stated that pension reform that enhances the funding levels of the pension systems and controls the growing impact of pension payments on the budget is necessary to stabilize the credit. The state's actuarial analysis of the reform does indicate progress toward this goal; with estimated savings of
The state's net tax-supported debt, at 5.8 percent of 2012 personal income, is at the high end of the moderate range and debt levels have increased with the state's issuance of GO bonds for operational purposes in fiscal years 2010 and 2011.
Comprehensive Budget Solutions Still Needed
The temporary increase in tax revenue, in conjunction with enacted hard spending limits moved the state closer to budgetary balance for fiscal years 2011 through 2014.
The enacted budget for fiscal 2014, which began
Moderate Economic Growth
Additional information is available at 'fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from
--'Tax-Supported Rating Criteria' (
--'U.S. State Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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Fitch Ratings has assigned an 'A-' rating to the following general obligation (GO) bonds of the