The notes will be sold via negotiation on or about
In addition, Fitch takes the following actions on the
--Affirms at 'AA+' the state's implied general obligation (GO) rating;
--Affirms at 'AA' the rating for the state building revenue bonds of the
The Rating Outlook on the long-term ratings is Stable.
The TANs are valid and binding obligations secured by general tax revenue to be received in the fourth quarter of the fiscal year, the treasurer's covenant to transfer sufficient borrowables to the note repayment fund, and a pledge of the faith and credit of the state.
KEY RATING DRIVERS
SOLID COVERAGE OF NOTES: The notes benefit from solid coverage by a first claim on
NOTEHOLDER PROTECTIONS: The notes bear the faith and credit of the state, with holdbacks employed if necessary to ensure note payment.
CONSERVATIVE FINANCES: The state follows conservative budget practices and has demonstrated a willingness to use broad balancing actions in response to economic and revenue weakness.
REBUILDING RESERVES: The state anticipates continued progress replenishing well-funded reserve balances that were depleted during the recession.
LOW LIABILITY BURDEN: Debt levels are low and pensions are well funded.
ECONOMIC RECOVERY CONTINUES:
SIGNIFICANT EROSION OF COVERAGE: For the notes, a significant erosion of coverage by projected fourth-quarter revenues as well as borrowable resources could pressure the rating. Given the very high coverage currently projected, Fitch considers this very unlikely.
CHANGE IN BUDGETARY MANAGEMENT: The ratings assume a continuation of the state's prudent approach to managing its budget and maintaining solid reserve levels.
The 'F1+' rating on the
Ample Resources to Cover TANs
All state revenues and receipts are deposited into the note repayment account beginning in the fourth quarter of the fiscal year until the balance is sufficient to repay the notes. The state treasurer may make deposits to the note repayment account earlier than scheduled from excess general fund resources. Once deposits are made, they cannot be withdrawn or loaned back to the general fund. In fiscal 2014, the note repayment account for the
Fiscal 2015 is projected to end on
Annual cash flow needs grew after passage of 2007 legislation that accelerated state aid for schools to the early months of the fiscal year as part of a plan to provide property tax relief. Following a recent legislative adjustment, just over 70% of annual payments to school districts are disbursed in the first five months of the fiscal year, enlarging cash flow imbalances and the need to borrow internally and externally. The largest mid-month imbalance during fiscal 2015, forecast at
Strong Overall Credit Quality
The 'AA+' implied GO rating reflects the general credit quality of the state. Although
Focus on Restoring Reserves
The state also has a history of building sizable reserve balances, including in its budget stabilization fund, economic recovery reserve, public education stabilization fund and higher education stabilization fund. Total balances in these funds rose to nearly
The state has prioritized rebuilding balances since then, both with direct appropriations at budget adoption and through the deposit of excess balances following budgetary overperformance. Total reserve balances, which reached
Positive Budgetary Results
Actual performance during fiscal 2014 has been well ahead of the enacted budget, and largely in line with the
The fiscal 2015 adopted budget assumes continued steady economic and revenue gains. On a cash basis, general fund tax revenues rise a robust 6.3%, to
Low Liability Levels
The state has a conservative approach to long-term borrowing, with a low burden overall. Tax-supported debt totals approximately
The state's major pension system, covering state and local retirees, has generally been conservatively managed. Assets are not smoothed, and statute requires amortization of the unfunded liability within 25 years. The system's funded ratio is above-average, at 85.4% in fiscal 2013 on a reported basis; using Fitch's more conservative 7% discount rate (versus the 7.5% rate used by the system), the funded ratio declines to a still above-average 80.9%. After several years during which the pension system's board held annual funding slightly below actuarially calculated levels, the state's fiscal 2015 budget increases contributions to the system. On a combined basis, the burden of net tax-supported debt and adjusted unfunded pension obligations that are attributable to the state equals 3% of 2013 personal income, well below the 6.1% median for U.S. states and among the lowest of the states.
Modest Economic Recovery
As of April, the state's monthly payrolls had returned to 97.9% of their pre-recession peak, while the nation had essentially fully recovered. Positively,
The state projects improvement over the rest of 2014 and into the next three years, with nonfarm payrolls forecast to expand 2.7% on an average annual basis.
Additional information is available at 'www.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
--'U.S. State Government Tax- Supported Rating Criteria' (
--'Rating U.S. Public Finance Short-Term Debt' (
U.S. State Government Tax-Supported Rating Criteria
Rating U.S. Public Finance Short-Term Debt
Source: Fitch Ratings
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