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MOODY'S ASSIGNS Aaa TO GEORGIA'S $997 MILLION GENERAL OBLIGATION BONDS IN SEVEN SERIES

17 Jun 2011

RATINGS AFFIRMED ON APPROXIMATELY $8.5 BILLION OUTSTANDING G.O. AND GUARANTEED REVENUE DEBT; OUTLOOK IS STABLE

State
GA

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2011A

Aaa

  Sale Amount

$39,105,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Bonds, Series 2011B

Aaa

  Sale Amount

$28,000,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Bonds, Series 2011C

Aaa

  Sale Amount

$412,510,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Bonds, Series 2011D (Federally Qualified School Construction Bonds - Direct Pay)

Aaa

  Sale Amount

$77,000,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Refunding Bonds, Series 2011E-1

Aaa

  Sale Amount

$69,700,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Refunding Bonds, Series 2011E-2

Aaa

  Sale Amount

$245,690,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

General Obligation Refunding Bonds, Series 2011F

Aaa

  Sale Amount

$125,750,000

  Expected Sale Date

06/21/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Jun 17, 2011 -- Moody's Investors Service has assigned a rating of Aaa to the State of Georgia's planned offering of approximately $997 million of general obligation bonds in seven series as presented above. The bonds include three series of tax-exempt refunding bonds, totaling $441 million, as well as three series totaling $479 million of tax-exempt debt for new capital projects. In addition, the state is issuing $77 million of federally taxable Qualified School Construction Bonds. Federal subsidy payments for these taxable bonds are not pledged as security. Proceeds of the new-money taxable and tax-exempt bonds will fund a variety of state purposes, including school and higher education facilities, department of public safety facilities, and transportation project construction.

RATING RATIONALE

The highest-quality rating is supported by Georgia's conservative fiscal management, moderate debt burden and relatively well-funded pensions. Budgetary reserves were largely used up by the end of fiscal 2010, after rising to $1.5 billion (about 8% of revenues). The outlook for the state's debt, including the current issues and $8.5 billion of previously issued bonds, remains stable based on our expectation Georgia will take appropriate steps to restore balanced financial operations and replenish reserves as the economy recovers.

Credit Strengths

--Conservative fiscal management, including prompt responses to revenue declines

--History of rapid reserve building (after the 2001 recession)

--Relatively well funded pensions

Credit Weakness

--Near depletion of reserves

--Economic and revenue weakness

DETAILED CREDIT DISCUSSION

RATING REFLECTS FINANCIAL MANAGEMENT PRACTICES

Georgia's Aaa general obligation rating is based on financial management practices enforced by statutory and constitutional provisions that have helped keep financial operations largely balanced and have encouraged recovery from revenue downturns such as in fiscal years 2002 and 2003. The state's constitution limits growth in appropriations to net projected revenues from existing sources, plus appropriations from reserves. Projected revenue is determined by the governor, giving the executive strong power to constrain expenditures. A history of prompt spending cuts in response to revenue shortfalls has been an important aspect of the state's credit profile. Georgia has addressed reporting issues that had delayed release of its audited financial statements for several years, and it has begun publishing multi-year financial plans showing out-year budget projections, a practice typically associated with the highest-rated states.

STATE REPORTED SLIGHT NEGATIVE AVAILABLE GENERAL FUND BALANCE FOR FISCAL 2010

Like other states, Georgia faced adverse economic conditions and sharp revenue declines during the economic downturn. These conditions led to a negative available balance in the state's general fund of $493 million, or almost 3% of state-source revenues in fiscal 2009. The fiscal 2010 comprehensive annual financial report (CAFR) shows an improved but still slightly negative fund balance of $41 million (general fund), less than 1% of state-source revenues in fiscal 2010. The negative balance represented a sharp deterioration from fiscal 2008's positive available general fund balance of $1.5 billion. GAAP-based available fund balance levels are important indicators of states' financial and governance strength. Georgia has a history of rebuilding these fund balances rapidly as economic conditions allow, primarily by replenishing its rainy-day fund, the Revenue Shortfall Reserve (RSR). By law, the RSR receives any fiscal year-end surplus and can hold as much as 15% of prior-year net revenues. The RSR balance at the end of fiscal year 2010 equaled $268 million (2% of revenues). During fiscal year 2011, the state has appropriated $152 million from the RSR for K-12 expenditures, leaving a projected balance of $116 million at fiscal year- end 2011. We expect RSR replenishment in fiscal years 2012 and 2013, which will bolster available balances in those periods. Georgia has a somewhat volatile economy, outpacing the nation during expansions and underperforming during contractions. This tendency may help the state exceed budgetary targets and rebuild reserves.

NEGATIVE AVAILABLE FUND BALANCE POSITION OFFSET BY TOTAL FUND BALANCE

The presence of the slight negative fund balance in fiscal 2010 is mitigated by the fact that the state's total general fund balance position remained strong. The total fund balance includes amounts that have been reserved or designated for specific purposes, and are therefore not part of the available balance. Georgia's conservative approach to accounting for these resources is evident in the fiscal 2010 year-end total general fund balance of approximately $3.7 billion, about 20% of revenues for the year. Components of the total fund balance included items that are, or could become, available for general operations, including $57.5 million reserved for debt service on authorized, but unissued, bonds. Total general fund balance also included $883 million of lottery revenues and $1.366 billion of gasoline excise tax revenues. These amounts were legally constrained to specific operating needs of the state (education programs and transportation projects, respectively).

YEAR-TO-DATE REVENUE GROWTH ABOVE PROJECTIONS

Like other states, Georgia incorporated use of non-recurring measures in its fiscal 2011 budget. Georgia received a one-time infusion of $288 million from the sale of Georgia Environmental Finance Authority (GEFA) water and sewer loans to local governments and utilized the federal stimulus funding provided under the American Recovery and Reinvestment Act of 2009 (ARRA) for a significant share of operating needs in the current fiscal year. Together, the ARRA and GEFA revenues account for about $1.156 billion, or 7.8%, of the state's total appropriations. The state's budget also incorporated recurring tax and fee increases of $468 million, or 3% of appropriations. These consist of measures such as ending an insurance premium tax exemption applicable to care management organizations, producing $68 million, and phasing out certain sales tax exemptions, generating $32 million. New fees consist primarily of a 1.45% tax on annual hospital provider revenues, expected to produce $216 million. The budget anticipated 4.2% growth in tax revenues, including the new sources, and 8.5% growth in total sources. Revenues have exceeded projected growth year to date. Total year-to-date tax collections rose 8% in May from the same period in fiscal 2010, reflecting growth in all major revenue areas including individual income tax and sales and use taxes.

FISCAL 2012 BUDGET INCORPORATES 4.2% IN TOTAL GENERAL FUND REVENUE GROWTH

The finalized fiscal 2012 budget anticipates revenue growth of 4.2%, or $700 million, which offsets a portion of the $1.1 billion in loss of ARRA funding. To close the remaining gap, the budget also incorporates agency reductions averaging roughly 7.0%, except in the K-12 funding area, which was held harmless. The expenditure reductions together with the growth in general fund revenues move the state closer to a structurally balanced budget position in fiscal 2012.

BOND ISSUANCE GOVERNED BY 1972 CONSTITUTIONAL AMENDMENT

Georgia's debt issuance practices are governed by a 1972 constitutional amendment that authorized the state to issue general obligation and guaranteed revenue bonds and created the Georgia State Financing and Investment Commission to oversee the state's debt issuance. The constitution does not allow debt to cover a revenue shortfall unless it is repaid within the same fiscal year by taxes levied for that year. The state issues only general obligation bonds or full faith and credit-guaranteed revenue bonds. The state's constitution further mandates conservative debt issuance practices by imposing a 25-year maximum term and a maximum annual debt-service cap at 10% of prior-year net revenues. Georgia has minimal exposure to variable-rate debt, with a single issue of such securities equal to about 3% of total debt outstanding. While Georgia in 2005 passed a law allowing interest rate swaps, it has not entered any swap agreements.

MODERATE DEBT BURDEN,

In Moody's 2011 State Debt Medians report, Georgia's debt-per-capita ranked 24th, at $1,103, compared with the $1,066 50-state median. Its 3.0% debt-to-income ratio was 20th, compared with the 2.8% median. Georgia's debt burden is relatively moderate, reflecting additional G.O. debt for capital projects as well as issuance of up to $1.65 billion of grant anticipation notes by the Georgia State Road and Tollway Authority. Such securities, which finance Federal Highway Administration-approved road construction projects, are included in the calculation of states' tax-supported debt even though pledged revenues come from the federal government, and Georgia itself is not the legal obligor.

PENSION PLANS ARE WELL FUNDED; SUBSTANTIAL LIABILITY FOR OPEB IS BEING ADDRESSED

The state's debt profile is bolstered by pension funded status that is among the best in the nation. The largest pension unit, the Employees' Retirement System of Georgia, had a funded ratio of 80.1% as of June 30, 2010; the Teachers Retirement System of Georgia had a funded ratio of 87.2% as of June 30, 2009. A new valuation for the Teachers Retirement System is expected in July 2011.

STATE IS SEPARATING RETIREE HEALTH TRUSTS FOR STATE AND SCHOOL EMPLOYEES

The state enacted legislation in 2009 to create two separate OPEB funds to distinguish between State Employee's and School Personnel. The state employee OPEB fund reports a $4.3 billion unfunded, actuarial accrued liability (UAAL) for OPEB, while the school personnel OPEB fund reports $11.8 billion UAAL. The annual required contribution (or ARC) to both provide for current service and amortize the liability for past service for the state employee plan is $348 million, and the ARC for the school personnel plan is $1 billion. On an aggregate basis, this represents about 7% of state revenues. This strategy and others the state is implementing will significantly reduce the state's ARC in future years. The state notes that new accounting standards for reporting retiree health benefit liabilities (GASB Statements 43 and 45) are not funding requirements, and that its OPEB plans will remain subject to appropriation and under the control of state agencies.

Outlook

The outlook for Georgia's general obligation credit rating is stable, based on Moody's expectation that the state will take appropriate actions to restore balanced financial operations and replenish its reserves.

What could move the rating -- Down:

--Continued negative fund balance position

--Reverse in economic growth without plans in place to offset declines

-- Over-reliance on non-recurring fiscal measures in out-years

The principal methodology used in this rating was Moody's State Rating Methodology published in November 2004.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Kimberly Lyons
Analyst
Public Finance Group
Moody's Investors Service

Edward Hampton
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS Aaa TO GEORGIA'S $997 MILLION GENERAL OBLIGATION BONDS IN SEVEN SERIES
No Related Data.
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