Fitch Ratings assigns an 'AA' rating to the $64.3
million Tennessee State School Bond Authority higher educational
facilities second program bonds, 2006 series A and B, for bid June 14.
Fitch also affirms the 'AA' rating on the authority's $445.1 million
outstanding higher educational facilities second program bonds.
The 'AA' rating is based on the strength of the two payment sources -- campus revenues and state appropriations -- and the state's intrinsic role in the authority and its financings.
Tennessee uses authority debt to finance revenue-generating projects at public colleges and universities such as dormitory, parking, and energy facilities. Authority bonds are payable under financing agreements with the governing bodies of the University of Tennessee (UT) system, which enrolls over 40,000, and Tennessee's State University and Community College system, which enrolls over 115,000. Under the agreements, the systems pay annual charges to the authority from campus revenues. These charges are used to pay debt service on the second-program bonds, as well as $20.4 million outstanding bonds issued under the authority's first program, which has a senior lien but is no longer utilized. If payments are delinquent, available state appropriations are to be intercepted to meet debt service requirements, although no such recourse has ever been needed. In addition, a debt service reserve fund or surety bond has been established or secured at a level of funding equal to maximum annual debt service at the project level.
Following reductions in fiscal 2004, growth in state funding for Tennessee's colleges has resumed. Formula appropriations through the Tennessee Higher Education Commission rose from $796.1 million in fiscal 2004 to $851.4 million by fiscal 2006. Total state operating funds for colleges, including monies outside this formula, rose from $1,088.7 million in fiscal 2004 to $1,166.9 million by fiscal 2006 and are expected to approximate $1,205.9 million in fiscal 2007. Future enrollment growth is expected due to demographic changes and continuation of lottery-funded scholarships.
Tennessee's general obligations are rated 'AA', with a Stable Rating Outlook. Tennessee's economy always has been vulnerable to cyclicality, and sales tax-dominated revenues generally have been unable to keep pace with spending. A persistent structural deficit plagued state operations for several recent years; however, a more recently improved economy, a major tax increase, and the restructuring of TennCare, the broadly covered medical health care program, have since restored budgetary balance.
A drawback to the state's financial position is its heavy reliance on the sales tax, which was raised in 2002 and now makes up over 60% of state revenues. The state has shown fiscal restraint by consistently balancing its financial operations when challenged by significant structural gaps while maintaining a budgetary reserve, which ended fiscal 2005 at a record high $275 million and is projected to end fiscal 2006 at $325 million, or 3.2% of revenues. Fiscal 2006 general fund receipts through April are 3.4% above estimates. The fiscal 2007 executive budget projects sales tax growth of 4.8% and continues to manage TennCare costs, which are expected to rise 4.4% in fiscal 2006 and 0.9% in fiscal 2007, following years of average double-digit growth.
Three distinct economic areas - eastern, middle, and western, identified, respectively, with Knoxville, Nashville, and Memphis ? continue to characterize Tennessee's economy, but the state is experiencing major change in its manufacturing-heavy employment base. Manufacturing has diversified, partly due to the steep decline in apparel and textiles jobs, which together dropped over 75% from 1990-2005. Apparel accounted for only 2% of manufacturing employment in 2005, down from 12.6% in 1990, while transportation equipment (automobiles) has risen to more than 15.5% of manufacturing employment and become the largest group. Meanwhile, the professional and business services sector grew nearly 90% from 1990-2005, providing over 11% of the state's jobs in 2005, up from 7.5% in 1990. April 2006 total non-farm employment is up 1.2% over last year, compared to the 1.4% national rate. The state experienced healthy population growth from 1990-2000, expanding by nearly 17%, compared with the national rate of just over 13%, and continued growth from 2000-2005, rising nearly 5%, just under the national rate of 5.3%.
The estimated $51.8 million 2006 series A are due May 1, 2007-2036, callable at 101% of par on or after May 1, 2014. The estimated $12.5 million 2005 series B (federally taxable) are due May 1, 2007-2011 and are not subject to earlier redemption.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
The 'AA' rating is based on the strength of the two payment sources -- campus revenues and state appropriations -- and the state's intrinsic role in the authority and its financings.
Tennessee uses authority debt to finance revenue-generating projects at public colleges and universities such as dormitory, parking, and energy facilities. Authority bonds are payable under financing agreements with the governing bodies of the University of Tennessee (UT) system, which enrolls over 40,000, and Tennessee's State University and Community College system, which enrolls over 115,000. Under the agreements, the systems pay annual charges to the authority from campus revenues. These charges are used to pay debt service on the second-program bonds, as well as $20.4 million outstanding bonds issued under the authority's first program, which has a senior lien but is no longer utilized. If payments are delinquent, available state appropriations are to be intercepted to meet debt service requirements, although no such recourse has ever been needed. In addition, a debt service reserve fund or surety bond has been established or secured at a level of funding equal to maximum annual debt service at the project level.
Following reductions in fiscal 2004, growth in state funding for Tennessee's colleges has resumed. Formula appropriations through the Tennessee Higher Education Commission rose from $796.1 million in fiscal 2004 to $851.4 million by fiscal 2006. Total state operating funds for colleges, including monies outside this formula, rose from $1,088.7 million in fiscal 2004 to $1,166.9 million by fiscal 2006 and are expected to approximate $1,205.9 million in fiscal 2007. Future enrollment growth is expected due to demographic changes and continuation of lottery-funded scholarships.
Tennessee's general obligations are rated 'AA', with a Stable Rating Outlook. Tennessee's economy always has been vulnerable to cyclicality, and sales tax-dominated revenues generally have been unable to keep pace with spending. A persistent structural deficit plagued state operations for several recent years; however, a more recently improved economy, a major tax increase, and the restructuring of TennCare, the broadly covered medical health care program, have since restored budgetary balance.
A drawback to the state's financial position is its heavy reliance on the sales tax, which was raised in 2002 and now makes up over 60% of state revenues. The state has shown fiscal restraint by consistently balancing its financial operations when challenged by significant structural gaps while maintaining a budgetary reserve, which ended fiscal 2005 at a record high $275 million and is projected to end fiscal 2006 at $325 million, or 3.2% of revenues. Fiscal 2006 general fund receipts through April are 3.4% above estimates. The fiscal 2007 executive budget projects sales tax growth of 4.8% and continues to manage TennCare costs, which are expected to rise 4.4% in fiscal 2006 and 0.9% in fiscal 2007, following years of average double-digit growth.
Three distinct economic areas - eastern, middle, and western, identified, respectively, with Knoxville, Nashville, and Memphis ? continue to characterize Tennessee's economy, but the state is experiencing major change in its manufacturing-heavy employment base. Manufacturing has diversified, partly due to the steep decline in apparel and textiles jobs, which together dropped over 75% from 1990-2005. Apparel accounted for only 2% of manufacturing employment in 2005, down from 12.6% in 1990, while transportation equipment (automobiles) has risen to more than 15.5% of manufacturing employment and become the largest group. Meanwhile, the professional and business services sector grew nearly 90% from 1990-2005, providing over 11% of the state's jobs in 2005, up from 7.5% in 1990. April 2006 total non-farm employment is up 1.2% over last year, compared to the 1.4% national rate. The state experienced healthy population growth from 1990-2000, expanding by nearly 17%, compared with the national rate of just over 13%, and continued growth from 2000-2005, rising nearly 5%, just under the national rate of 5.3%.
The estimated $51.8 million 2006 series A are due May 1, 2007-2036, callable at 101% of par on or after May 1, 2014. The estimated $12.5 million 2005 series B (federally taxable) are due May 1, 2007-2011 and are not subject to earlier redemption.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.