NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has assigned an 'AAA' rating to the following state of
--$649,970,000 general obligation (GO) bonds 2014A;
--$151,115,000 GO bonds 2014B (federally taxable);
--$13,750,000 GO bonds 2014C (federally taxable qualified school
construction bonds - direct pay);
--$162,995,000 GO refunding bonds 2014D.
The bonds will sell via competitive bid, on or about June 17, 2014.
Fitch has also affirmed the 'AAA' ratings on $9.1 billion of outstanding
GO ($8.8 billion) and guaranteed revenue bonds of the state (Georgia
State Road & Tollway Authority, $348.6 million).
The Rating Outlook is Stable.
The bonds are general obligations of the state of Georgia, secured by a
pledge of the state's full faith and credit.
KEY RATING DRIVERS
LOW LIABILITY BURDEN: The state's long-term liability burden is low and
overall debt management is conservative. While Georgia issues bonds
regularly for capital needs, amortization of principal is rapid.
Additionally, the state fully funds its annual required contributions
for pensions keeping the unfunded liability very manageable.
FISCALLY CONSERVATIVE: Georgia has a long history of conservative
revenue estimation and balanced operations and has consistently taken
timely action to address fiscal weakness. The state has capitalized on
recent revenue growth to make substantial progress in rebuilding
DIVERSIFIED ECONOMY: After a sharp recessionary downturn, the state's
diverse economy is showing signs of an accelerating recovery.
The rating is sensitive to fundamental changes in the credit
characteristics of the state including an unexpected failure to respond
to changes in the economy that result in budget gaps, or an unexpected
change in debt profile.
The longstanding 'AAA' rating and Stable Outlook on Georgia's GO bonds
reflect its conservative debt management, a proven willingness and
ability to support fiscal balance, and a diversified economy. The state
took repeated action during the recession to maintain fiscal balance
through steep spending cuts, use of federal stimulus, and draws from its
rainy day fund, the revenue shortfall reserve (RSR). Since then it has
maintained a conservative approach to fiscal management, curbing
spending growth and making progress in rebuilding the RSR balance. The
state's debt profile is conservative and its debt burden is moderate as
a percentage of personal income.
Low Long-Term Liabilities
Most of the state's tax-supported debt is in the form of GO or
guaranteed revenue bonds and amortization of principal is rapid, with
just over 70% maturing within 10 years. Other outstanding obligations
include $913.3 million in federal grant anticipation revenue (GARVEE)
bonds and $188.5 million in capital leases. Including the current sale,
debt remains moderate at 2.8% of 2013 state personal income.
Georgia's major pension systems covering both state employees and
teachers have benefited from consistent full funding of actuarially
calculated annual required contributions. As of the June 30, 2012
valuation, systemwide funded ratios for the state employees and teachers
plans were reported at 73.1% and 82.3%, respectively. Using Fitch's more
conservative 7% discount rate assumption, the state employees' and
teachers plans would be funded at 69.3% and 78%, respectively, as of
June 30, 2012. On a combined basis (and inclusive of the new issuance),
the state's net tax-supported debt and Fitch-adjusted unfunded pension
liability attributable to the state total 4.8% of 2013 personal income,
below the median of 6.1% for U.S. states.
Funded ratios declined very modestly in the June 30, 2013 valuation, but
Fitch notes positively that the state's pension systems both adopted
more conservative actuarial assumptions. The reported ERS and TRS funded
ratios were 71.4% and 81.1%, respectively. The boards of both retirement
systems shifted to closed amortizations from open amortizations. ERS'
UAAL for each year will be fully amortized within separate closed 25
year periods, while for TRS the amortization periods (using a similar
methodology) will be closed 30 year periods.
Broad and Recovering Economy
While the recession was more severe in the state than the nation
overall, Georgia's employment recovery has outpaced the nation recently.
Like all states, Georgia remains vulnerable to significant macroeconomic
risks including the uneven pace of the housing market recovery and the
effects of the Federal Reserve's tapering of quantitative easing.
Statewide employment began year-over-year (YOY) gains in fall 2010,
shortly after the nation. While the initial growth rate was tepid and
volatile, the growth trend outpaced national YOY employment gains in
2013 (2% versus 1.7%) and Georgia'sApril 2014 YOY gain of 1.9% was
ahead of the nation's 1.7% rate. Unemployment remains elevated though,
and the state's overall wealth levels still lag the U.S. As of April
2014, the state's unemployment rate was 7% versus the national 6.3%
rate. Georgia's per capita personal income ($38,179) ranks 40th among
the states at 86.4% of the U.S., and its poverty rate of 17.4% exceeds
the national 14.9% rate.
Conservative Financial Management
Georgia has demonstrated its commitment to budgetary balance and
maintaining flexibility in the form of RSR balances. Strong revenue
performance through fiscal 2007 (year ended June 30) enabled the RSR
balance to reach $1.5 billion (8.2% of net revenues) by fiscal 2007.
During the recession, the state drew down the RSR to a low of $103.7
million (0.6% of net revenues) in fiscal 2009. Through spending
restraint and conservative revenue estimating, Georgia has steadily
rebuilt the RSR since then.
The state ended fiscal 2013 with a solid RSR balance of over $900
million, supported by strong revenue growth and expense management.
After accounting for the customary 1% mid-year appropriation for
education spending, the net RSR balance was $717.3 million (3.9% of
fiscal 2013 net general fund revenues). Total net general fund revenues
increased 5.9% from the prior year, ahead of the 4.1% amended budget
estimate. As in other states, personal income tax growth (7.7% YOY) was
a major driver, and Georgia attributed a portion of that growth to a
one-time acceleration of income into the 2012 tax year as a result of
the recent federal tax increase.
The structurally balanced fiscal 2014 original budget and amended budget
assume moderate economic and revenue growth. Amended fiscal year (AFY)
2014 budget estimates are for just 3.7% growth in tax revenues
(Department of Revenue reported tax collections, which exclude the
insurance premium tax) from fiscal 2013. Georgia's 2014 projections
prudently incorporated a significant slowdown in YOY personal income tax
growth, despite last year's sharp increase of nearly 8%, to account for
the effects of income acceleration. Through May, the state's tax
revenues are up 4.6% YOY, versus the 3.7% AFY 2014 estimate. Stronger
growth in corporate income tax revenues, and to some extent sales tax
revenues, offset weaker growth in personal income tax revenues.
Georgia's fiscal 2015 adopted budget reflects overall improvement in
fiscal flexibility. The state notably increased K-12 funding by over
$500 million to allow school districts to restore recession-related cuts
in staffing and school days. Additionally, unlike in recent years, the
fiscal 2015 budget did not include broad-based expenditure reductions
from current year-funding levels. Fitch views the budget as structurally
balanced and in line with the state's historically conservative
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
U.S. State Government Tax-Supported Rating Criteria
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Source: Fitch Ratings