NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following State of Maryland (the state) general obligation (GO) bonds, state and local facilities loan of 2012, first series, consisting of:
--$150 million first series A tax-exempt bonds (negotiated);
--$450
million first series B tax-exempt bonds (competitive);
--$321.59
million first series C tax-exempt refunding bonds (competitive).
Series A will be sold on March 2 and 5, and series B and C will be sold on March 7. The par amount for the refunding series is approximate and will be determined upon final sale.
In addition, Fitch affirms the following ratings:
--$7.3 billion state GO bonds at 'AAA';
--$20.67 million Maryland
Transportation Authority parking lease revenue bonds, Calvert Street
parking garage project, series 2005, at 'AA+';
--$232.2 million
Maryland Stadium Authority (MSA) lease revenue bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
General obligations to which the state's full faith and
credit are pledged.
KEY RATING DRIVERS
--STRONG DEBT MANAGEMENT: Debt oversight is
strong and centralized, and the debt burden is moderate. The state has
policies to maintain debt affordability, and the constitution requires
GO and transportation bonds to amortize within 15 years.
--PENSION FUNDING REFORMS: Pension funding levels have deteriorated, although the state has undertaken extensive pension and other post-employment benefit (OPEB) reforms.
--BROAD ECONOMY: The state has a diverse, wealthy economy, benefiting from its proximity to the nation's capital.
--CONSERVATIVE FINANCIAL OPERATIONS: Financial operations are conservative, and the state maintains a well-funded rainy day fund to manage revenue cyclicality. The state took repeated action during the course of the recession to address projected budget gaps, including raising tax revenues, cutting spending, and using rainy day and other balances.
CREDIT SUMMARY
The 'AAA' rating on the state's GO bonds reflects
its sound financial operations, a wealthy, diversified economy and
strong management of debt. The state's economy is experiencing a slow
return to growth after the recession, during which widespread job losses
and a deep housing market downturn affected state revenue collections.
Severe revenue declines required the state to take repeated balancing
actions, including implementing cuts and fund transfers and relying on
federal stimulus. Revenue performance has stabilized, although the state
continues to undertake broad corrective actions to narrow a forecast
structural imbalance. Maryland retains a well funded rainy day fund
(RDF) and ample fiscal flexibility. The state is wealthy and its diverse
economy benefits from proximity to the nation's capital. Federal
spending cuts could weigh on the state in the near term, although Fitch
believes the state would have time to react to the impact of federal
changes.
After uneven economic performance through much of 2011, the state's economic rebound appears to be strengthening. December 2011 employment rose 1%, compared to 1.3% nationally, and job growth is widespread across key service sectors, including government. The state continues to benefit from employment shifts associated with the 2005 federal military base realignment (BRAC) process. The state's unemployment rate, at 6.7% in December 2011, is well under the 8.5% national average. Measured on a per capita basis, Maryland's 2010 personal income ranks fourth among the states, at 123% of the U.S. level. Personal income in the state continued to grow through the downturn, unlike much of the country, and third quarter 2011 was up 4% from the third quarter of 2010, compared to 4.1% nationally in the same period. The state anticipates 2.9% annual growth in 2012 and 3.5% growth in 2013. The impact and timing of federal austerity on the state's economic performance remains unknown, although the state has begun to incorporate possible effects into its forecast assumptions.
Financial operations are conservative, with the state consistently demonstrating a strong commitment to budgetary balance through the downturn, including through repeated spending cuts, fund balance transfers and revenue increases. The state has also maintained flexibility in the form of the RDF, which has remained funded at or near 5% of general fund revenues in recent years. At enactment of the fiscal 2012 budget, the state forecasted that the year would close with a $56 million fund balance (0.4% of forecast general fund revenues at the time), and an RDF balance at $682 million (5% of general fund revenues at the time). Forecast revenues were adjusted modestly upward in September 2011, then down slightly in December 2011. Including forecast changes and proposed deficiency appropriations, the state expects the fiscal year to end with a balance of $285 million, or 2% of general fund revenues. Actual revenues year-to-date through January are 6.1% ahead of prior-year collections but 0.7% below the December forecast.
The fiscal 2013 executive budget addresses a forecast budget gap estimated at $940 million. To close the gap, the proposed budget relies on new tax revenues ($311 million), mostly from limiting personal income tax (PIT) deductions and exemptions for high earners, spending cuts ($611 million), primarily from a partial teacher pension shift to local governments and trimming Medicaid spending, and transfers ($104 million), including replacing pay-go capital with new bonds. Under the proposal, the state would shift half of annual contributions for teacher pensions to counties, to be offset by the impact of PIT and other revenue changes on county receipts and mandate changes. The fiscal year would close with a general fund balance of $164 million (1.1% of forecast general fund revenues) and an RDF balance of $721 million (5% of general fund revenues).
The burden of total tax-supported debt is moderate, and the state's strong and centralized debt management remains a credit strength. Net tax-supported debt as of Dec. 31, 2011, equals approximately $10.2 billion, or 3.6% of 2010 personal income. More than two-thirds of tax-supported debt is GO bonds. GO and transportation bonds are constitutionally required to mature within 15 years, ensuring rapid amortization. Debt affordability guidelines include holding tax-supported debt at or below 4% of personal income.
The funding of the state's pensions has deteriorated in recent years, with June 30, 2011 funding for the state employees at 62.8% and teachers at 66.3%. Using Fitch's more conservative 7% discount rate assumption, the state employees and teachers' plans would be 58% and 61.2%, respectively (see Fitch's report dated Feb. 17, 2011, 'Enhancing the Analysis of U.S. State and Local Government Pension Obligations' available at www.fitchratings.com). The pension and health care reforms enacted with the 2012 budget are expected to slow the growth of the state's pension liability and direct additional contributions to the pension system over time to improve funding ratios. Benefit changes to other post-employment benefits are estimated to have reduced the state's OPEB liability to $9.7 billion, from $15.9 billion.
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', dated Aug. 15, 2011;
--'U.S. State Government
Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S.
State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897
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.