The October refunding bonds are expected to sell via negotiation on or about
Fitch has also maintained the Rating Watch Negative on the following ratings:
--Issuer Default Rating (IDR) 'BBB+;
Fitch expects to resolve the Rating Watch by the end of January based on the progress of the fiscal 2017 budget. Fitch expects to resolve the Rating Watch by the end of January following an assessment of the state's financial condition if and when it enacts a full budget for the fiscal year that began
The bonds are general obligations, full faith and credit of the state of
State statutory mechanisms include an irrevocable and continuing appropriation for all GO debt service, and continuing authority and direction to the state treasurer and comptroller to make all necessary transfers from any and all revenues and funds of the state. The state funds debt service in advance by setting aside 1/12 of principal and 1/6 of interest every month for payments due in the ensuing 12 months.
KEY RATING DRIVERS
The Rating Watch Negative reflects the financial implications of the state's extended budget stalemate, which, as anticipated by Fitch, has continued into a second fiscal year.
The 'BBB+' rating continues to reflect the strengths inherent in a state's independent ability to control its budget, which remain substantial in
Economic Resource Base
The state benefits from a large, diverse economy centered on the
Revenue Framework: 'aa' factor assessment
Expenditure Framework: 'a' factor assessment
Long-Term Liability Burden: 'a' factor assessment
Liabilities are an elevated but still moderate burden on
Operating Performance: 'bbb' factor assessment
FISCAL 2017 BUDGET: Failure to enact measures that lead to ongoing budget balance would trigger a downgrade. Successful implementation of measures to enact a structurally balanced budget and reduce accumulated budget liabilities would place the credit on a positive trajectory.
Historical revenue growth, adjusted for the estimated impact of policy changes, has been slightly above the inflation rate over the 10 years through 2014 but has somewhat lagged national economic growth. With
As with most states,
Spending growth, absent policy actions, is likely to be higher than revenue growth, driven mainly by increasing pension costs.
Despite carrying costs that are among the highest of the states, Fitch believes that
During the current budget impasse, almost 90% of spending continued to be funded in fiscal 2016 at the 2015 rate, based on continuing appropriations, consent decrees, and court orders, as well as the enacted education budget. A similar partial budget was enacted for fiscal 2017. There is little flexibility to control spending outside of the budget process in part because the governor cannot unilaterally make changes without legislative participation.
Long-Term Liability Burden
Short-term borrowing is allowed, subject to a limitation of 5% of appropriations for revenue anticipation purposes, which must be repaid by the close of the fiscal year, and 15% to meet revenue failure, which must be repaid within one year. The state has no short-term borrowing currently outstanding or planned, although notes were issued during the downturn.
The governor and state legislature could not come to agreement on a realistic spending and revenue plan for either the fiscal year that ended
The state has a history of enacting important legislation in what is termed the "lame duck" session, after an election. The legislature has raised revenues and passed pension reform legislation during these non-regular legislative sessions. To stabilize the rating, the state will need to address the fiscal 2017 budget following the election in November or at the latest during a January legislative session. While it is unlikely that any actions taken would fully address the fiscal 2017 budget gap, Fitch will be looking for a solution that is comprehensive in its approach, addressing structural budget balance and including a plan to address accumulated liabilities. Failure to do so would result in a rating downgrade.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and
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The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from
Source: Fitch Ratings