Fitch Rates West Virginia Lease Revs 'AA'; Outlook Stable.
--$4.075 million lease revenue refunding bonds (Capitol Parking Garage) series 2011A;
--$8.365 million lease revenue refunding bonds (State Office Bldg) series 2011B.
The bonds are expected to sell via negotiation on Oct. 27, 2011.
In addition, Fitch affirms the following ratings:
--$580 million outstanding general obligation (GO) bonds of the State of West Virginia at 'AA+';
--$504 million outstanding appropriation-backed debt of the EDA and School Building Authority at 'AA'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--The state's now-longstanding focused and disciplined efforts to address its accumulated financial challenges have supported generally successful financial operations, including the use of surpluses to build reserves and to reduce pension liabilities.
--Recent financial results have been strong with generation of budget surpluses despite revenue weakness during the recession. The rainy day fund balances are sizeable and growing. The governor has broad power to cut spending to address revenue shortfalls.
--West Virginia's economic base has diversified, though significant exposure to the cyclical resources industry remains. Wealth and other demographic indicators are weak.
--Tax supported debt levels are moderate and amortization is above average. Despite substantial progress made, significant unfunded pension liabilities remain.
The bonds are special limited obligations of the EDA payable from lease revenue payments from the state of West Virginia, subject to annual appropriation. The series 2011A bonds are supported by a transfer of $500,000 annually from the Lottery Fund.
The lease revenue bonds are limited obligations of the state, with lease payments subject to annual appropriation; as such, the 'AA' rating is one notch below the GO of the state of West Virginia. Unless earlier terminated, the lease purchase contracts extend to the final maturity of the bonds and renew automatically each fiscal year unless canceled by the state before the end of the then current fiscal year. The state has covenanted to include lease payments in its budget requests and lease payments are not subject to abatement. The current offerings refund outstanding lease revenue bonds for debt service savings.
The rating reflects the state's strong financial management and sound reserve position and a commitment to disciplined efforts, begun 17 years ago, to address accumulated financial challenges, in particular seriously under-funded teachers' pensions and workers' compensation systems. The state's economic base is growing and diversifying but is still somewhat vulnerable to cyclical natural resources, primarily coal. Debt levels are moderate although the state's long-term liabilities remain high. Positive financial operations in recent years have been directed to reducing these long-term liabilities.
Faced with severe fiscal and economic challenges during the 1980s, West Virginia has since institutionalized positive fiscal and management practices, highlighted by the governor's broad power to cut spending and the consolidated executive control of debt issuance by state agencies. Coupled with a generally growing economy, these practices have contributed to more successful financial operations. The state has generated budgetary surpluses in each of the past seven fiscal years, including in fiscal 2011, which ended June 30. Strong severance tax collections, fueled by a robust energy economy, contributed to the surpluses.
The state is emerging from the recession in a strong financial position. Although revenues fell slightly year-over-year in both fiscal years 2009 and 2010, the state did not draw on its rainy day fund, and managed the revenue declines with use of federal stimulus funds and spending reductions, continuing to generate surpluses and additions to the rainy day fund in each of these recessionary years. Revenues in fiscal 2011 increased 8.1% year-over-year and were 8.6% above budget while expenses increased 1.8% on a year-over-year basis, and were 3.2% below budget. The fiscal 2012 budget, which is based on an assumption of revenue that has already been met in fiscal 2011, fully funds the school aid formula, provides raises for school and state employees, increases the employee retirement match, and increases appropriations for corrections.
In addition to applying annual operating surpluses to reducing its long-term liabilities, the state has retained half of each year's surplus in one of its two rainy day funds, which, as of the end June, had a combined balance of $659 million. Part A of the two-part rainy day fund receives 50% of annual operating surpluses until it reaches 13% of general fund appropriations. Part B was initially funded with a transfer of the cash balance from the Tobacco Settlement Medical Trust Fund in 2006. With the deposit of $150.7 million of the surplus for fiscal 2011 into the rainy day fund in August, reserves total approximately $814 million, or 20% of fiscal 2012 state general revenue appropriations. The rainy day funds cannot be spent without legislative appropriation. The state's fiscal 2012 budget does not contemplate any withdrawals from the rainy day funds.
West Virginia's economic profile has evolved to more closely resemble that of the nation with increases in the service sectors; however, its economy remains relatively narrow with a reduced but still important presence of cyclical natural resource industries. The state lagged the U.S. entrance into the recession, posting positive employment growth of 0.5% in 2008, versus the national decline of 0.4%. State employment declined 2.1% in 2009, significantly better than the national decline of 4.6% and was flat in 2010 while the U.S. continued to decline 0.8%. Employment growth was fairly strong at the end of calendar year 2010 and into 2011, but has since abated somewhat, growing 0.5% year-over-year as of August while the U.S. grew 1%.
West Virginia's economy had been marked by low and generally slow-growing personal incomes. However, recent performance has been notably stronger than that of the nation; in 2008 state personal income growth was 143% of that of the nation, and in 2009 state personal income increased 2% over the prior year while nationally a decline of 1.7% was realized. Similarly, in 2010, state personal income grew 3.6% while the U.S. grew at a slower 3% rate. As a result of the strong performance, West Virginia's per capita personal income now ranks 48th of the states, at 80.1% of the U.S. rate, a relatively high percentage for the state. Unemployment rates have been near or even below national average over the past decade; population has remained stable while employment has grown. The August unemployment rate of 8.1% continues to compare favorably to the U.S. rate of 9.1%.
Overall, tax supported debt has been declining as a percentage of personal income and represents a moderate burden on resources. As of June 30, 2011, net tax-supported debt approximated $2.1 billion, or 3.4% of 2010 personal income. West Virginia's pension funding levels, which had been amongst the worst of the states, remain weak but are improving. The state has made a concerted effort to not only fund the ARC but to add assets in excess of the ARC to the pension systems. The state deposited $1.6 billion from budget surpluses and a tobacco securitization into the plans in addition to paying the ARC in fiscal years 2006 and 2007. As a result, the funded ratio of the Teacher's Retirement System, which is fully paid by the state, has increased from less than 20% in 2002 to 46.5% in 2010.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
|Printer friendly Cite/link Email Feedback|
|Comment:||Fitch Rates West Virginia Lease Revs 'AA'; Outlook Stable.|
|Date:||Oct 24, 2011|
|Previous Article:||Sterlite Industries (India) Limited Unaudited Consolidated Results for the Second Quarter and Half Year Ended 30 September 2011.|
|Next Article:||LG U+, South Korea's Leading Communications Service Provider, Signed Licensing Agreement with SPIRIT DSP for Mobile VoIP and Video Engine.|