NEW YORK - (Business Wire) Fitch Ratings has assigned an 'AA+' rating to the Virginia College Building Authority's (the authority) educational facilities revenue bonds (Public Higher Education Financing Program), series 2009B. The bonds are scheduled for competitive sale on Nov. 10, 2009 and will be due Sept. 1, 2010-2039. At the same time, Fitch has affirmed the 'AA+' ratings on the authority's approximately $2.25 billion in outstanding debt (including both this program and the 21st Century College and Equipment Program). The Rating Outlook is Stable.
The authority's 'AA+' rating reflects provisions allowing the Commonwealth of Virginia (the commonwealth; general obligation debt rated 'AAA' by Fitch) to intercept state-appropriated funds due to participating institutions in the event of non-payment under loan agreements with the authority. The rating also recognizes the highly centralized nature of the commonwealth's debt management and its direct oversight of this program.
Series 2009B bond proceeds will be used to acquire institutional notes from each of nine public higher educational institutions participating in the issue, which in turn will use the proceeds to finance capital projects. These bonds as well as earlier series are issued under a master indenture; each note is issued separately by each institution to the authority, pursuant to separate loan agreements. Under the loan agreements, the institutions pledge their general revenues to make payments on the institutional notes, which are paid directly to the trustee in amounts sufficient to pay debt service on the bonds.
Ultimate credit rests with the commonwealth as a result of the intercept provisions, which provide that if an institution fails to make payments on its note, the state comptroller is required upon direction from the governor to make an intercept payment immediately to the owners of the institutional note. Institutional note payments are due 15 days prior to the semiannual debt service on the bonds, providing ample time for the intercept payments to be made. The intercept payments are made from any appropriation of general revenues available to the institution, which is extremely broad, providing multiple levels of coverage at the time payments are required.
The commonwealth's 'AAA' rating reflects its substantial economic resources, conservative approach to financial operations, which includes periodic revenue forecast updates, and careful attention to the level of its debt obligations. While the national recession has affected state revenues, resulting in downward revisions totaling $5.6 billion over the course of the 2008-2010 biennium, Virginia has implemented balancing measures which include appropriation cuts, the replacement of pay-as-you-go capital spending with bonding, staff reductions, use of portions of federal stimulus monies for Medicaid and state fiscal stabilization, and a withdrawal of $490 million from the revenue stabilization fund in fiscal 2009. An additional withdrawal of $283 million was recently proposed, though legislative approval will be necessary. At the end of fiscal 2010, the fund is expected to hold approximately $300 million after the draw, representing 2.1% of fiscal 2010 revenues, down from $575 million at the end of fiscal 2009.
The mid-biennium budget bill proposed ending the 2008-2010 biennium with approximately $160 million in fund balance. Total commonwealth flexibility heading into fiscal 2011, inclusive of the balance in the revenue stabilization fund and expected stimulus monies for K-12 and higher education purposes, was projected to total over $1.2 billion, or approximately 8.7% of fiscal 2010 revenues. However, revenue performance through the balance of fiscal 2009 was nearly $300 million below February 2009 estimates. Fiscal 2009 general fund revenues declined by 9.2% compared to the prior year, versus the projected decline of 7.3%. Sales tax receipts declined by 5.6%, falling further than the expected decline of 3.7%, while net individual income tax receipts declined by 6.3%, a greater margin than the projected 4.1% rate of decline. The governor has proposed corrective measures totaling $1.35 billion, inclusive of the additional revenue stabilization fund withdrawal noted earlier, to meet the fiscal 2009 shortfall and lowered expectations for fiscal 2010. Revenue performance through the first quarter of fiscal 2010 is short of the lowered expectations. Commonwealth flexibility going into fiscal 2011, should revenues hold, will total approximately $634 million, or 4.5% of fiscal 2010 revenue.
The commonwealth benefits from a diverse economic base and high wealth levels. Strong employment gains in recent years moderated in 2007 to 0.9%, slightly below the national growth rate, and figures for 2008 indicate that state employment declined 0.1% for the year. Employment contraction has accelerated since fourth quarter 2008, and September 2009 employment was down 3.1% from the prior year, which compared favorably with a national loss of 4.2% over the same period. State unemployment, at 4% for 2008, increased to 6.7% in September 2009, lower than the national rate of 9.8%. Personal income growth for 2008 was 3.1%, slightly ahead of national growth of 2.9%. At $44,224, personal income per capita equaled 110% of the U.S. average in 2008, ranking seventh among the states.
The commonwealth's debt ratios are in the lower moderate range and have grown over the past fiscal year. As of June 30, 2009, net tax-supported debt totaled $8.7 billion, equal to $1,125 per capita and 2.5% of 2008 personal income. General obligation debt constitutes approximately 19% of net tax-supported debt, with the remainder principally represented by various appropriation credits. Capital needs for higher education and transportation improvements remain large.
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