NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to $14,745,000 in Maryland Department of Transportation (MDOT) certificates of participation (COPs) (Maryland Port Administration facility project), refunding series 2016 (AMT), evidencing proportionate interests in a conditional purchase agreement between the Bank of New York Mellon and the State of Maryland.
The COPs are expected to sell via competitive sale on or about Nov. 30, 2016.
The Rating Outlook is Stable.
MDOT's COPs are payable solely from purchase installments to be paid by MDOT pursuant to the purchase agreement, subject to appropriation in each year by the Maryland General Assembly.
KEY RATING DRIVERS
The 'AA+' rating on MDOT's transportation-related COPs, one notch below Maryland's 'AAA' Long-Term Issuer Default Rating (IDR), is based on the annual appropriation pledge supporting the bonds.
Economic Resource Base
Maryland's economy is wealthy, diverse and service oriented. The presence of the federal government in the neighboring District of Columbia has long served as an important economic anchor, and trade and port activity are likewise significant, centered on Baltimore. Economic expansion continues despite the drag posed by federal sequestration in recent years.
Revenue Framework: 'aaa' factor assessment
Maryland's revenue growth is expected to be in line with or above the level of U.S. economic growth, given the state's solid economic base, service-oriented economy and broad tax resources. Maryland retains unlimited authority to raise operating revenues. Cyclical revenue performance is a risk given both the prominence of personal income tax (PIT) in overall state revenues and the state's exposure to changes in federal spending. However, overall growth prospects for revenues remain strong.
Expenditure Framework: 'aa' factor assessment
Maryland has a solid ability to change its spending commitments in response to shifting economic and revenue circumstances. Spending pressures from education and Medicaid, among other needs, have been notable in recent years. Carrying costs for liabilities are above the median for states, partly given the state's extensive role in funding education, including capital and pensions.
Long-Term Liability Burden: 'aa' factor assessment
The burden of net tax-supported debt and unfunded pensions is elevated for a state, but only a moderate burden in relation to the state's resource base. Debt is comprehensively managed. Pensions have been a more significant burden, but the state has implemented multiple reforms to benefits and contribution policies to improve sustainability and accelerate funded ratio improvement over time.
Operating Performance: 'aaa' factor assessment
Financial resilience is very strong, with a well-funded budgetary reserve and a willingness to trim spending commitments and increase revenues in response to changing circumstances. Multi-year forecasting and planning are disciplined, including measuring actual performance against structural targets. Consensus-oriented practices ensure steady management of budgetary conditions and liabilities.
IDR LINKAGE: The rating on MDOT's COPs is sensitive to changes in the state's IDR, to which it is linked.
SOUND FISCAL MANAGEMENT: The state's IDR is sensitive to continued sound fiscal management practices and consistent maintenance of fiscal flexibility.
The 'AA+' rating on MDOT's COPs, one notch off of Maryland's 'AAA' Long-Term Issuer Default Rating, reflects the state's overall credit quality and the appropriation pledge supporting the certificates. The current sale refunds COPs issued to fund a warehouse at Baltimore's port.
Debt service is paid as part of MDOT's budget, subject to annual appropriation by Maryland's General Assembly. Although debt service is intended to be derived from resources in the TTF, the state's primary repository for transportation revenues, it is not limited to TTF resources, nor is it linked to the revenues generated by the performance of financed facilities. The TTF receives its own taxes, fees, federal grants, and other revenues, separate from the state's general fund. Excess resources do not revert to the general fund at fiscal year-end.
Transportation-related COPs, as with MDOT's consolidated transportation bonds, are integrated into the state's strong debt management framework. Issuance of MDOT debt is subject to Board of Public Works approval and legislative oversight. MDOT has used appropriation credits on a very limited basis in the past for capital funding of certain transportation-related facilities or equipment.
Maryland's 'AAA' Long-Term IDR reflects its broad, diverse and wealthy economy, extensive budget controls and sound financial operations, and strong management of debt. The state's economy has long benefited from proximity to the nation's capital, although exposure to federal budget cuts poses a greater uncertainty for Maryland given its large federal agency presence and associated private contracting. Fiscal management is very strong, with consensus-oriented long-term planning and multiple sources of flexibility including a consistently solid budgetary reserve and a demonstrated ability to adjust spending to address changing circumstances. Although liabilities are elevated for a state, they are a moderate burden on resources and carefully managed.
For additional information on the state, please see 'Fitch Rates $1B Maryland GOs 'AAA'; Outlook Stable' dated May 26, 2016; for additional information on MDOT, please see 'Fitch Rates Maryland's $700MM Consolidated Transportation Bonds 'AA+'; both are available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Rating Public-Sector Counterparty Obligations in PPP Transactions (pub. 12 Jul 2016)
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
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