NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following state general obligation (GO) bonds issued by the Board of Fund Commissioners on behalf of the State of Missouri:
--$63,530,000 state water pollution control GO refunding bonds, series A 2012;
--$100,035,000 fourth state building GO refunding bonds, series A 2012.
The bonds are expected to be sold through competitive bid on Sept. 11, 2012.
In addition, Fitch affirms the following ratings:
--State GO bonds at 'AAA';
--Certificates of participation, series A 2011 refunding at 'AA+';
--Board of Public Buildings special obligation and state building bonds at 'AA+';
--Missouri Development Finance Board leasehold revenue bonds at 'AA+';
--Missouri Health and Educational Facilities Authority (University of Missouri-Columbia Arena Project) educational facilities revenue bonds at 'AA+';
--Regional Convention & Sports Complex Authority state appropriation bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are GOs of the state, with a full faith and credit pledge. Security for Missouri's GO bonds is very strong, with a constitutional provision requiring debt service payments be transferred to a sinking fund one year in advance of the required payment.
KEY RATING DRIVERS
LOW DEBT LEVELS: The state's debt burden is low with minimal GO debt. Bonds issued for transportation needs represent 70% of total state net tax-supported debt.
CONSERVATIVE FINANCIAL MANAGEMENT: Missouri has a long record of conservative operations and has consistently displayed a willingness and ability to support fiscal balance. The state's financial flexibility and liquidity position remain healthy, supported by reserves that remained fully funded throughout the recession.
BROAD ECONOMY SIMILAR TO U.S.: The state's economy is broad and diverse. The economic profile and sector distribution are similar to those of the nation, although recent performance has been weaker than the U.S. experience.
CREDIT PROFILE
Missouri's 'AAA' GO rating reflects a low debt burden, historically conservative financial operations, and a broad and diverse economy. The state has a long record of maintaining fiscal balance through spending restraint. The budget must be balanced, and the governor has strong constitutional authority to withhold funds as needed. Additional financial flexibility is provided by a budget reserve fund (BRF) equal to 7.5% of net general revenues; notably, reserve funds were not drawn on in the recession.
Although state revenues were negatively affected in the recession, the state consistently acted to maintain balance. Net general revenues for fiscal 2009, initially forecast to rise 3.4%, ended down 6.9%. In response, the governor implemented several rounds of spending cuts, totaling $480 million. The revenue forecast for fiscal 2010 initially assumed a 1% increase in net general revenue, but the revenue outlook was subsequently revised downward on several occasions, followed by prompt action to lower planned spending; actual revenues in fiscal 2010 declined by 9.1%.
Initial revenue projections for fiscal 2011, made in January 2010, forecast revenue growth of 3.6%. The enacted fiscal 2011 budget, totaling $7.9 billion, included significant spending cuts, consolidations and efficiency measures, as well as $859 million of federal stimulus funds. Working revenue estimates were revised downward prior to the start of the fiscal year and the state restricted spending to maintain balance. With revenue overperformance and lapsed spending, the state's ending cash balance totaled $379 million at June 30, 2011, a level higher than prior estimates.
The enacted budget for fiscal 2012 was initially based upon expected revenue growth of 4% and was balanced through the continuance of the fiscal 2011 spending restrictions, level-funding of K-12 formula aid, the use of remaining stimulus funds, and a 7% reduction in higher education spending, among other measures. Fiscal 2012 ended with revenues up 3.2% year-over-year. Personal income tax revenue rose 5.9% and sales tax revenue 4.9%. Personal income tax revenues equal approximately 65% of general revenues, and sales taxes about 25%. The ending cash balance for fiscal 2012 was $205 million.
Missouri maintained balance without revenue increases again in fiscal year 2013, which began on July 1. Budget solutions included $45 million from debt refundings and use of $40 million in monies from the national mortgage settlement to fund higher education. The December 2011 forecast for fiscal 2013 projects revenues up 3.9% to $7.6 billion, including the mortgage settlement monies. Personal income taxes are forecast up 3.2%, and sales taxes 2.5% compared to fiscal 2012 projections.
Missouri's economy is broad based, with a profile very similar to that of the nation. The state's economy lagged that of the U.S. between 2004 and 2007, then fared better than the nation as it entered the recession. Performance in the recovery has lagged.
As the U.S. saw 1.1% job growth in 2011 state employment remained flat, and growth has continued to prove evasive in 2012 as the nation adds jobs. The state has experienced year-over-year job losses since May 2012, with July down 0.5%. The state's unemployment rate was greater than or equal to the U.S. rate on an annual basis from 2004 through 2009, but recent figures have been below those of the nation. In July 2012, Missouri's 7.2% unemployment was 87% of the U.S. average, partly reflecting labor force declines in the state. Measured by personal income per capita, Missouri ranks 29th among the states, at 92% of the U.S. level.
The state's debt burden is low, with net tax-supported debt equal to 1.9% of 2011 personal income. Debt levels reflect borrowing for transportation needs, including bonds issued under voter-approved Amendment 3 and grant anticipation revenue vehicle (GARVEE) bonds. Approximately 70% of outstanding tax-supported debt has been issued for transportation purposes. GO bonds constitute only 10% of outstanding debt, with the remainder consisting of appropriation-supported issues.
Proceeds from the current sale will be used to refinance outstanding state GO bonds. Savings will front-loaded to fiscal 2013, with modest dissavings in certain years thereafter. Although refunding debt for budget relief is not a regular practice of the state, Fitch notes that the magnitude of the budget relief is relatively modest (about $45 million in fiscal 2013, including this offering and a Missouri Board of Public Buildings special obligation bond transaction undertaken earlier this summer) and outyear dissavings minimal.
As of June 30, 2011, the reported funded ratio of the state's largest pension system was 79.2%. Using Fitch's more conservative 7% discount rate assumption rather than the system's 8.5%, the funded ratio falls to 68%. The state has consistently funded its actuarially calculated required contributions to the system. On a combined basis, the burden of net tax-supported debt and adjusted unfunded pension obligations is well below the 6.6% of personal income median for U.S. states rated by Fitch.
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 Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
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