NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to approx. $96 million in state of Texas general obligation (GO) water financial assistance bonds to be issued by the Texas Water Development Board:
--$43,200,000 series 2015E (economically distressed areas program);
--$40,215,000 series 2015F;
--$12,680,000 taxable series 2015G.
The bonds are expected to sell via negotiated sale on or about 28 May 2015.
The Rating Outlook is Stable.
The bonds are general obligations to which the state pledges its full faith and credit.
KEY RATING DRIVERS
LOW DEBT: The state's debt burden remains low despite significant growth-related capital needs, especially for transportation. Amounts for debt service are constitutionally dedicated.
GROWTH-ORIENTED ECONOMY: The state's economy is large, diverse, and is growing rapidly relative to national averages. The state's energy industry remains a significant source of economic activity and continues to be subject to volatility.
SIGNIFICANT RESERVE BALANCES: Financial operations are generally conservative. The state has built a sizable budget reserve, with a portion of natural resource receipts dedicated to funding it.
SALES TAX DEPENDENCE: Finances are dependent on consumption-based (primarily sales) taxes; volatile energy taxes are also important.
GROWTH-RELATED SPENDING PRESSURES: Longer term fiscal pressures stem from having to adequately fund the state's rapid growth. This includes expanded transportation needs, school funding, and water needs.
ECONOMIC GROWTH AND HIGH RESERVES: The state's GO rating and Stable Outlook assume the maintenance of high reserve balances and continued economic growth. The rating could be pressured in the event of severe revenue weakness, arising from such things as cyclicality in the state's large energy sector, or unwillingness to address potential fiscal challenges in an effective and timely manner.
The state's long-term 'AAA' GO rating reflects its low debt burden, conservative financial operations and a growth-oriented economy that continues to outpace national averages. Financial pressures arise from the demands placed on the state's consumption-based tax system by its rapid growth, including addressing transportation, education and water needs.
Texas' GO bonds are payable from a constitutional appropriation out of the first moneys coming into the state treasury not otherwise appropriated. This unrestricted balance equaled nearly $48 billion as of Aug. 31, 2014, the fiscal year-end.
The Texas Water Development Board issues water financial assistance bonds under a 1997 constitutional amendment that consolidated the board's various authorizations, with proceeds supporting water conservation and infrastructure projects throughout the state. As of Aug. 31, 2014, the board has over $6.5 billion in unissued GO bond authorization available for various board programs.
By policy, most water financial assistance bonds are self-supporting from repayments of loans made to local entities for water development projects and income received from investments. Certain water financial assistance bonds, including for the economically distressed areas program, receive general fund support.
The board's resources and responsibilities for managing water projects were expanded under a constitutional provision approved by voters in November 2013 which included the transfer of $2 billion from the state's rainy day fund, the Economic Stabilization Fund, to establish a loan program for water-related projects. Water infrastructure remains a perennial need in the state given its high growth and scarce water resources.
The legislature continues to deliberate on the state's biennial budget for fiscal 2016-2017, which begins on September 1. The House and Senate have completed separate budget proposals, with a conference committee currently working on a consensus plan. The legislative session ends on June 1.
For additional information on the GO rating of the State of Texas, please see Fitch's rating action commentary dated 26 Feb. 2015, 'Fitch Rates Texas $200MM GO Water Bonds 'AAA'; Outlook Stable,' which is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the 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
U.S. State Government Tax-Supported Rating Criteria