Fitch assigns an 'AA-' rating to the New York State Thruway Authority's $339,525,000 second general highway and bridge trust fund bonds, series 2008B, expected to sell through negotiation the week of August 18th. Fitch also affirms the rating on $6.4 billion outstanding first and second general highway and bridge trust fund bonds at 'AA-'. The Rating Outlook is Positive.
Underlying the 'AA-' rating on the trust fund bonds is the strength of the state's incentive to appropriate for debt service. The bonds are payable from dedicated highway and bridge trust fund revenues, subject to annual appropriation by the state legislature. In the event of non-appropriation, the state would be unable to receive revenues held by the Local Government Assistance Corporation (LGAC) trust fund, which receives one cent of the state's sales tax and contributes more than $2 billion to the state general fund. This credit feature, in conjunction with the adequacy of the additional bonds test and the record of state support for the highway and bridge capital program, allows for a rating on par with that assigned to New York's general obligation (GO) debt.
The highway and bridge trust fund receives dedicated portions of the petroleum business tax (about 33% of fiscal 2008 dedicated revenues), motor vehicle fees (30%), motor fuel tax (20%), and various other transportation-related taxes and fees. Changes have been made to the dedicated taxes and fees over time, with the state consistently taking action to maintain the fund's integrity. The state's financial plan includes a cash transfer of $228 million from the general fund to the trust fund in fiscal 2009 to address a funding shortfall and assumes additional transfers in future years, rising to $845 million in fiscal 2012.
The trust fund bonds enjoy additional security derived from various impoundment provisions triggered if the legislature fails to appropriate. In addition to the impoundment of LGAC funds, in the case of non-appropriation the state would not receive funds from the highway and bridge trust fund capital account to provide for pay-as-you-go highway and bridge projects. The state's commitment to these bonds is further evidenced by provisions for shortfalls in any appropriated amounts to be transferred from the capital account, and, if necessary, from the state's general fund, without additional appropriation.
Fiscal 2008 dedicated revenues of about $2 billion provide 2.4 times (x) coverage of maximum annual debt service after this issuance. Given the size of the highway and bridge capital program and the limited funding available, coverage is expected to return to near the 2x additional bonds test level with future issuance.
New York's 'AA-' GO rating recognizes the state's substantial wealth and resources and broad economy, somewhat tempered by uneven performance across the state. Net tax-supported debt levels have been relatively stable as a percentage of personal income and are expected to remain above average but still in the moderate range; pensions are well funded.
In the first-quarter update to its financial plan, released on July 30th, the state meaningfully reduced forecasts of tax revenues. The state now forecasts a $630 million general fund shortfall for the current fiscal year and a $1.3 billion increase in the fiscal 2010 gap estimate, to $6.35 billion (including a $310 million Health Care Reform Act [HCRA] shortfall). The revisions were a response to developments since the enacted budget and highlight the importance of the cyclical financial services industry to state revenues. The current-year shortfall is largely attributable to lowered performance of and expectations for business (particularly bank) taxes and, to a lesser extent, sales and use taxes; the outyear estimates for all major tax sources were reduced.
Although Fitch recognizes the significant uncertainty associated with the declining economic and financial environment, the state is taking proactive steps to address the projected budget gaps. The fiscal 2009 shortfall is expected to be resolved through executive action to cut spending and the governor is seeking additional savings, including by calling a special legislative session, to hedge against the possibility of additional shortfalls this year and begin to address the fiscal 2010 gap. Future credit direction will depend on the severity and duration of the downturn and the state's success in achieving sustainable budget solutions. The next quarterly update to the financial plan is scheduled for October 2008.
The bonds will be due April 1, 2009-2028. The series 2008B bonds are issued pursuant to a second general resolution and are junior to outstanding bonds issued under the first general resolution. The first resolution is closed except for refunding. Fitch does not make a rating distinction between the liens.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this underlying rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
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