Fitch Ratings assigns an 'AA-' rating to the New York State Thruway Authority's $206,050,000 second general highway and bridge trust fund bonds, series 2009A, expected to sell through negotiation the week of Feb. 16th. A refunding series may be added at pricing depending on market conditions. Fitch also affirms the rating on $6.7 billion outstanding first and second general highway and bridge trust fund bonds at 'AA-'. The Rating Outlook is Stable.
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 despite the appropriation requirement.
The highway and bridge trust fund receives dedicated portions of the petroleum business tax (about 33% of projected fiscal 2009 dedicated revenues), motor vehicle fees (29%), motor fuel tax (21%), 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 fiscal 2010 executive budget includes a cash transfer of $308 million from the general fund to the trust fund to address a funding shortfall and assumes additional transfers in future years.
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.
Dedicated revenues of about $2 billion provide 2.3 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 reflects the state's substantial wealth and resources and broad economy, recognizing concerns, now heightened, regarding the outsized role that the financial services industry plays in the state's economy and revenue system. 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.
About 20% of state tax revenue has come from the financial services sector and, as would be expected, the deteriorating economic and financial environment has been particularly troublesome for New York. The state is forecasting 60,000 financial sector layoffs and total private sector job losses of 180,000, with declines in all sectors but education and health services.
The state has taken proactive positive steps to identify and address projected budget gaps over the course of fiscal 2009 as revenue forecasts have been reduced steeply. The governor's December 2008 executive budget proposal closed a $1.7 billion gap for fiscal 2009 (which ends on March 31, 2009) and a $13.7 billion gap for fiscal 2010; these estimates were modified only slightly, to $1.6 billion and $13.8 billion, respectively, with the 30-day amendments to the budget released on Jan. 15. On Feb. 3 the legislature and governor agreed to measures to close the $1.6 billion fiscal 2009 gap, primarily through fund transfers and insurance industry assessments. Following these actions the fiscal 2010 gap is reduced to a still large $13 billion; the governor's proposed budget solutions rely on recurring spending and revenue actions, although broad-based tax increases are not included. No extraordinary federal aid is assumed, and no deficit financing is employed. Fitch will continue to monitor the state's efforts to achieve sustainable solutions to the difficult budget challenges as well as economic and revenue trends for the state.
The series 2009A bonds will be due April 1, 2010-2029. The 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 rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
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.
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Fitch Ratings, New York
Laura Porter, 212-908-0575
Richard
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or
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212-908-0526
Email: cindy.stoller@fitchratings.com