Fitch Rates Maryland's $50MM GO QSCBs and $5.6MM GO QZABs 'AAA'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to two series of State of Maryland general obligation (GO) qualified tax credit bonds, consisting of:

--$50,320,000 qualified school construction bonds (QSCBs) of 2009 (tax credit bonds);

--$5,563,000 qualified zone academy bonds (QZABs) of 2009 (CY 2007 federal allocation).

The QSCBs will sell prior to Dec. 31, 2009; the QZABs will be placed privately on Dec. 7, 2009. Both QSCBs and QZABs mature in 15 years, with annual sinking fund payments to be made through maturity. Neither is subject to early redemption. Fitch also affirms the 'AAA' rating on approximately $6 billion in outstanding Maryland GO bonds. The Rating Outlook is Stable.

The state's 'AAA' rating reflects its sound financial operations, a wealthy, diversified economy, and solid management of debt. The state's economy is suffering through a deep recession, with widespread job losses and a severe housing market decline affecting state revenue collections. The state has taken prompt and repeated action to preserve operating balance, including tax increases, repeated spending cuts, and use of federal stimulus balances; the rainy day fund remains funded at its statutory target of 5% of revenues. Despite revenue weakness late in fiscal year (FY) 2009, the year closed in balance through use of unreserved fund balance. Revenue weakness in FY 2010 has prompted further balancing actions to return the enacted FY 2010 budget to balance.

The state is wealthy, and its diverse economy benefits from proximity to the nation's capital. Despite experiencing severe recessionary conditions, the state's performance by many indicators remains better than national averages. October 2009 employment fell 2% year-over-year, compared to a 4% decline nationwide. Employment losses are widespread, with steep declines in construction and financial activities; solid growth is limited at present to the education and health sector. The state's economic forecast has been revised downward several times over the last year, most recently in September 2009; employment now is expected to decline 2.9% in 2009 and 0.4% in 2010, respectively, compared to declines of 2.6% and 0.2%, respectively, in the prior forecast. Personal income growth has slowed but exceeds the nation's, with second quarter 2009 rising 0.7% year-over-year, compared to a 2.6% decline nationwide. The state's revised forecast anticipates a decline of 0.7% in 2009. Measured on a per capita basis, the state's personal income ranks sixth among the states, at 120% of the U.S. level.

The state has a moderate debt burden, and its strong debt management remains a credit strength. Net tax-supported debt equals approximately $9.5 billion before this sale, or 3.5% of 2008 personal income. Two-thirds of tax-supported debt is GO bonds. GO and transportation bonds are constitutionally required to mature within 15 years, ensuring rapid amortization. Debt affordability guidelines include holding tax-supported debt at or below 4% of personal income.

Financial operations are conservative, and the state continues to demonstrate a commitment to maintaining budgetary balance. Economic weakness led to a sharp revenue decline in FY 2009, with total general fund revenues falling 4.9% from the prior year, to $12.9 billion. Weakness was led by personal income tax collections, which fell 6.7%. Budget balance was maintained through a combination of broad spending cuts, transfers and federal aid, and the fiscal year ended with a general fund balance of $87 million and a rainy day fund balance of $692 million, together equal to 6% of revenues.

The FY 2010 budget as enacted in April 2009 had been based on a forecast revenue decline of 1.6% from the prior year, to $13 billion; a year-end fund balance of $88 million was forecast. The enacted plan was balanced through a mix of one-time resources, including $1 billion in federal stimulus funds and $518 million in spending cuts. With continued revenue underperformance the state revised its revenue forecast in September, projecting a decline of 4.5% from the prior year, to $12.3 billion, again led by weaker personal income tax receipts. To return to balance, the state has implemented nearly $1.1 billion in FY 2010 spending cuts and other balancing measures since budget enactment, including $362 million approved this week. With the most recent round of balancing measures, the fiscal year currently is expected to end with a fund balance of $121 million, or 1% of general fund revenues. Actual revenue collections through October are slightly ahead of the revised estimate.

Additional information is available at www.fitchratings.com.

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