OUTLOOK IS STABLE
Georgia (State of)
Guaranteed Revenue Refunding Bonds, Series 2011A
Expected Sale Date
Guaranteed Revenue Refunding Bonds, Series 2011B
Expected Sale Date
NEW YORK, Mar 7, 2011 -- Moody's Investors Service has assigned a rating of Aaa and stable outlook to the
Georgia State Road and Tollway Authority's Guaranteed Revenue Refunding Bonds,
consisting of $203.5 million Series 2011A and $151.7 million Series 2011B. The
sale amounts are subject to change based on market conditiona at pricing. The
bonds are being issued to generate net present value debt service savings
of approximately $29 million.
The bonds are special limited obligations of the Authority, payable from pledged
revenues consisting primarily of a portion of the state motor fuels taxes. The
bonds are also guaranteed by the state (general obligation bond rating of Aaa)
and will be entitled to its full faith, credit and taxing power for bond
repayment. The state's Aaa rating reflects its conservative fiscal management,
moderate debt burden and 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 remains stable based on our
expectation Georgia will take appropriate steps to restore balanced financial
operations and replenish reserves as the economy recovers.
--Conservative fiscal management, including prompt responses to revenue declines
--History of rapid reserve building (after the 2001 recession)
--Relatively well funded pensions
--Near depletion of reserves
--Economic and revenue weakness
DETAILED CREDIT DISCUSSION
RATING REFLECTS STATE GUARANTEE, THOUGH STRENGTH OF PLEDGED REVENUES MAKE
The bonds represent guaranteed revenue bonds of the state, entitled to the full
faith, credit and taxing power of the State of Georgia. They are also limited
and special obligations of the authority, payable solely from pledged motor fuel
tax revenues received by the authority pursuant to a joint resolution between
the State Transportation Board and the authority.
The Georgia Department of Transportation (DOT) is the agency that receives and
has control of all state motor fuel tax revenues. All motor fuel tax collections
from the preceding fiscal year are appropriated in each year to the DOT, and
must be used to maintain an adequate system of public roads and bridges.
Pursuant to the joint resolution, the DOT is directed to transfer to the
authority so much of the motor fuels tax received as shall be necessary to allow
payment on the bonds.
Total motor fuel tax collections were $853 million in fiscal 2010, projected to
grow to $898 million in fiscal 2011, and $913 million in fiscal 2012. While the
rating for these bonds rests on the state's pledge of its credit which secures
the guarantee, the legal security provided by the authority's pledged revenues
makes it unlikely that the state guarantee will be utilized.
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 recently released 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 in response to economic growth, 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. We expect RSR replenishment in fiscal years 2011 and
2012 will preclude negative 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 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).
TAX REVENUE GROWTH OF 4.2% EXPECTED IN FISCAL 2011
Like other states, Georgia incorporated use of non-recurring measures in its
fiscal 2011 budget. Georgia expects to receive a one-time infusion of $288
million from the sale of Georgia Environmental Finance Authority (GEFA) water
and sewer loans to local governments and 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
anticipates 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 8.1% in January from the same
period in fiscal 2010, primarily reflecting growth in individual income tax and
sales and use taxes.
STATE IS WITHHOLDING ALLOTMENTS OF APPROPRIATED FUNDS TO PROVIDE
ADDITIONAL BUDGETARY FLEXIBILITY
In the beginning of the fiscal year the state implemented a withholding of
allotted funds of most agencies at 4%, providing an approximately $267 million
cushion. A portion of this was intended to offset the shortfall of $184 million
in the amount the state budgeted for ARRA (reflecting $147 million less than
budgeted in enhanced Medicaid payments from the federal government and $37
million less in K-12 stabilization funds). The remainder of the
withheld allotments will add to the fiscal 2011 operating surplus. The
state also maintains $116 million in the RSR.
GOVERNOR'S FISCAL 2012 BUDGET RECOMMENDATION ANTICIPATES 3.9% IN TOTAL GENERAL
FUND REVENUE GROWTH
The proposed fiscal 2012 budget anticipates revenue growth of 3.9%, or $650
million, which offsets a portion of the $1.1 billion in loss of ARRA funding. To
close the remaining gap, the Governor has proposed agency reductions of
7.0%, except in the K-12 funding area, which will be reduced by 1%. The
expenditure reductions together with the growth in general fund revenues moves
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.
DEBT BURDEN, WHILE MODERATE, IS RISING
In Moody's 2010 State Debt Medians report, Georgia's debt per capita ranked
21st, at $1,120, compared with the $936 50-state median. Its 3.3%
debt-to-income ratio was 19th, compared with the 2.5% median. Though still
moderate, Georgia's debt burden is rising relative to other states, 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 85.7% as of June 30, 2009; the Teachers
Retirement System of Georgia had a funded ratio of 87.2%.
STATE IS SEPARATING RETIREE HEALTH TRUSTS FOR STATE AND SCHOOL EMPLOYEES
The state has reported a $16.3 billion unfunded, actuarial accrued liability
(UAAL) for OPEB provided by the State Health Benefit Plan. The annual required
contribution (or ARC) to both provide for current service and amortize the
liability for past service is $1.37 billion, or about 8% of state revenues. More
than three quarters of the ARC is attributable to school systems, and the state
has created a separate retiree health benefit fund to provide for state
employees, and another to provide for school district employees. 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.
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.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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MOODY'S ASSIGNS Aaa TO THE STATE OF GEORGIA'S $355 MILLION IN STATE ROAD AND TOLLWAY AUTHORITY BONDS
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