Fitch Ratings assigns an 'AA-' rating to $60 million State of Minnesota 911 revenue bonds (public safety radio communications system project), series 2009. The bonds, scheduled to sell through negotiation the week of Oct. 5, mature June 1, 2010-2025. Fitch also affirms the 'AA-' rating of approximately $77 million outstanding 911 revenue bonds. The Rating Outlook is Stable.
The 'AA-' rating reflects the satisfactory debt service coverage provided by pledged 911 fee revenues, planned debt retirement of no more than 16 years, and thorough project planning and oversight by the state. Although the revenue pledge is narrow, telecommunications use is ubiquitous, the fee has been in place for more than 20 years with stable performance, and the fee applies to voice over internet protocol (VOIP). Receipts have been and are projected to be stable, with notable fluctuations having occurred only when the fee amount was administratively increased within the parameters of state statute. Emerging technologies potentially pose a risk to the legal and practical application of the fee.
The bonds are special, limited obligations issued by the State of Minnesota to fund portions of the six-phase Allied Radio Matrix Emergency Response (ARMER) system. The ARMER system will ultimately provide a statewide digital radio network that is interoperable between state, county, and city public safety officers, as well as other government workers.
The bonds are solely secured by the 911 fee revenues and have priority over all other payments from the fees, except for debt service on Metropolitan Council bonds that were issued in 1999 for phase one of the ARMER system (refunded in 2007). These bonds first receive the amount necessary to pay annual debt service costs ($0.02 of the current $0.75 monthly fee, or $1.6 million). The outstanding Metropolitan Council bonds mature in 2013 and no additional Metropolitan Council bonds are authorized or expected. Although the Minnesota legislature has authorized $248.5 million in 911 revenue bonds, the state plans to issue a total of $229 million, with a portion of project costs funded from available cash. The additional bonds test requires debt service coverage of 150%.
The 911 fee is assessed at a monthly rate of $0.75 to each customer in the state who uses telephone service, whether wireless, wire-line, or voice-over internet protocol, and is collected by the telecommunication provider who in turn remits the fee to the state monthly. Since inception the 911 fee revenue has primarily been used to construct and operate the infrastructure necessary for a 911 emergency response system. Fee revenues rose 1.1% in fiscal 2008. Inclusive of debt service on the Metropolitan Council bonds, outstanding bonds, the current issue, and expected future issuance for the program, fiscal 2009 fee revenues provide about 2.15 times (x) coverage of maximum annual debt service (MADS), which occurs in fiscal 2012. The fee was raised $0.10, to the current $0.75, effective July 1, 2009, and the 2.15x coverage ratio does not include this increase or additional authorized and planned fee increases of $0.10 in each of fiscals 2011 and 2012, to $0.95, which afford additional margin. Projected revenues in fiscal 2012, which reflect a $0.95 fee, provide 3.1x coverage of MADS.
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