Fitch Rates Texas' $125MM GO Water Bonds 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to $125 million in State of Texas (the state) general obligation (GO) water financial assistance bonds, consisting of:

--$100 million, series 2009E (water infrastructure fund);

--$25 million, series 2009F (economically distressed areas program).

The bonds will be sold via negotiation on Nov. 17. Series 2009E matures Aug. 1, 2010-2029, and series 2009F matures Aug. 1, 2010-2026; early redemption provisions will be determined upon final sale. Fitch also affirms the 'AA+' rating on outstanding GO bonds of the state. The Rating Outlook is Stable.

The 'AA+' GO bond rating reflects the state's low debt and conservative financial operations and an economy that has expanded and diversified, despite near-term recessionary conditions. Financial pressures arise from the demand that rapid growth places on the state's consumption-based tax system, as well as from efforts to address transportation needs and property tax relief. The state's economy is weakening in the current downturn, resulting in declines in sales and natural resource taxes, although the state maintains a sizable budget reserve. The enacted fiscal 2010-2011 appropriations budget achieved balance by lowering planned spending from the prior biennium and relying on federal stimulus.

The state's GO bonds are payable from a constitutional appropriation out of the first moneys coming into the state treasury not otherwise appropriated, $36.9 billion at fiscal year-end 2008. Water financial assistance bonds are issued under a 1997 constitutional amendment which consolidated various authorizations of the water development board, proceeds of which support water conservation and infrastructure projects. By policy, the water financial assistance program is generally self-supporting from repayment of loans made to local subdivisions for various types of water development and income received from investments, although the economically distressed areas program, state participation program, and the water infrastructure fund receive general fund support.

The state's net tax-supported debt burden is low, with approximately $10.9 billion equal to $450 per capita and 1.2% of 2008 personal income as of May 31, 2009. There are $11.1 billion GO bonds outstanding, of which $8.4 billion are self-supporting. The state's debt burden has risen with issuance of nearly $5 billion in GO transportation bonds in recent years.

The state's economy grew through 2008, but performance in 2009 has weakened rapidly as national and international recessionary conditions affect key energy, construction and manufacturing sectors. State employment rose 2.1% in 2008 from the prior year, versus the U.S. decline of 0.4%. September 2009 employment fell 2.8% from September 2008, compared to a 4.2% decline nationally. Personal income fell in the first two quarters of 2009, down 0.6% and 2.2%, respectively, less severe than the 1.6% and 2.6% declines recorded nationally in the same periods. The state's economic forecast through fiscal 2011 anticipates sharp slowing in employment and personal income gains in fiscal 2009 and 2010, even as the state continues to outperform comparable national metrics.

Fiscal management is conservative, with the state now maintaining a sizable rainy day fund, the economic stabilization fund (ESF). Revenue collections are slowing with the economy, although planned transfers have brought the ESF balance to a sizable $6.7 billion, or 10.3% of fiscal 2009 general revenues. General revenues in fiscal 2009, which ended Aug. 31, slipped 3.5% from the prior year, to $65.1 billion, with a 2.7% decline in sales taxes, the state's largest source of collections, joined by sharp declines in natural resources receipts. The state benefited from almost $2 billion in federal stimulus receipts.

The revenue forecast for the fiscal 2010-2011 biennium, released in January 2009, anticipates a decline in all funds revenue; tax collections drop 1.6% from the prior biennium, to $79 billion. Sales tax collections grow 2.8%, well under the 12.3% pace of the previous biennium. The enacted fiscal 2010-2011 biennium spending plan appropriates $182.3 billion, 7.4% over appropriated fiscal 2008-2009 levels. Federal stimulus is expected to total $12.1 billion during the biennium. The $6.7 billion available in the ESF currently is forecast to rise to $9 billion by the end of fiscal 2011.

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.