NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to $123.57 million in State of Texas general obligation (GO) water financial assistance refunding bonds, consisting of:
--$6,075,000 subseries 2015A-1;
--$27,405,000 subseries 2015A-2 (variable rate);
--$46,220,000 taxable subseries 2015B-1;
--$26,550,000 taxable subseries 2015B-2 (variable rate);
--$9,950,000 (economically distressed areas program) subseries 2015C-1 (taxable);
--$7,370,000 (economically distressed areas program) subseries 2015C-2.
The par amounts are subject to change prior to final sale.
The bonds are expected to sell via negotiated sale on Jan. 13, 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 is 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, and 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, including stemming from 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 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 program 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 program bonds, including for the economically distressed areas program, receive general fund support.
The board's resources and responsibilities for managing water projects have been expanded under a constitutional provision approved in November 2013 which included the transfer of $2 billion from the state's rainy day fund, the Economic Stabilization Fund, to establish a revolving fund for water-related projects. Water infrastructure remains a perennial need in the state given its high growth and scarce water resources.
For additional information on the GO rating of the State of Texas, please see Fitch's press release dated Aug. 8, 2014, 'Fitch Affirms Texas GO Rating at '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 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
U.S. State Government Tax-Supported Rating Criteria