Fitch Ratings assigns an 'AA+' rating to the following State of Mississippi general obligation (GO) bonds:
--$353.73 million series 2011A;
--$29.625 million refunding series 2011B;
--$261.3 million series 2011C (taxable);
--$30.565 million refunding series 2011D (taxable).
In addition, Fitch affirms the 'AA+' underlying rating on the state's $3.75 billion in outstanding GO bonds.
The Rating Outlook is Stable.
The bonds are expected to sell via negotiation during the week of Oct. 3, 2011.
KEY RATING DRIVERS
--Mississippi's financial management is generally conservative and efforts to maintain balance amid revenue weakness have been prompt. Reserves remain, although balances have been drawn in a measured way.
--The state's economy continues to diversify; however, its manufacturing concentration well exceeds that of the U.S. and wealth and educational attainment indicators lag national levels.
--Mississippi's debt burden is moderate but above average for a state, and is largely in the form of GO debt. Debt amortization rates are above average.
SECURITY
The bonds are general obligations of the state, with its full faith and credit pledged.
CREDIT PROFILE
Mississippi's long-term GO rating of 'AA+' and Stable Outlook are based on the state's consistently conservative financial practices, established reserves, and diversifying economy, tempered by low wealth and educational attainment levels. The state's Working Cash-Stabilization Fund, which in recent years had attained goal levels of 7.5%, despite withdrawals, held approximately $191 million at the close of fiscal 2011, representing 4.2% of unaudited fiscal 2011 general fund revenues, and is expected to be a lower but still meaningful $95 million at the end of fiscal 2012. The state also has access to several other balances and reserves expected to total over $150 million at the close of fiscal 2012. Fitch notes that the state has suspended its 98% budgeting policy since fiscal 2008, including with the fiscal 2012 budget, but expects that the state will return to this historical practice as the economy and revenues recover. Pension funding levels are weak, although the state has shown a commitment to annual contributions.
Mississippi employment when compared nationally is overweight in the volatile manufacturing sector. The state lost jobs in the recession generally in line with the U.S. experience, with employment down 5.5% between 2007 and 2010 compared to a 5.7% loss for the nation. August 2011 figures indicate growth of 0.6% from the level of one year prior, though less robust than national growth of 1% for the same period. State unemployment in August 2011 remained high at 10.3%, up slightly from 10.1% one year prior though still off the highs seen in 2010. Income performance in Mississippi has exceeded that of the U.S. in every year since 2007; however, per capita personal income in 2010 of $31,046 is just 78% of the U.S. level, ranking Mississippi 50th among the states.
Economic weakness related to the recession resulted in revenue declines of 4.4% and 4.9% in fiscal years 2009 and 2010, respectively. Balance was maintained through budget restraint, often mid-fiscal year, the application of federal stimulus monies, and through the gradual drawdown of reserves accumulated prior to the recession. At the close of fiscal 2010, the Working Cash-Stabilization Fund balance was $245 million, representing 5.4% of fiscal 2010 revenues.
The fiscal 2011 budget, with appropriations approximately 1.4% above unaudited fiscal 2010 levels, was balanced through the application of stimulus funds, various balance draws, and an $80 million withdrawal from the Working Cash-Stabilization Fund. Actual fiscal 2011 revenue performance was approximately $120 million above initial expectations, up 2.2% year-over-year, and the state expects to close the fiscal year with a surplus. Approximately $191 million was available in the Working Cash-Stabilization Fund at the close of the fiscal year.
Budgeted spending in fiscal 2012 reflects growth of 3% over estimated fiscal 2011 spending, while revenues are conservatively estimated to grow by 0.2% over final estimated fiscal 2011 levels. The state has budgeted an additional withdrawal of $88 million from the Working Cash-Stabilization Fund, and the fund is expected to hold approximately $95 million at the close of fiscal 2012. Revenue performance through the first two months of the fiscal year is 2.4% above the state's estimates.
Proceeds from the bonds now being issued will finance highway and bridge construction and general capital and economic development projects while the balance will be used to refinance short-term debt issued largely for economic development purposes and for refunding purposes. Prior to this sale, the state's net tax supported debt burden of approximately $5 billion represents a moderate but above average burden on resources at 5.5% of 2010 personal income. Debt is largely GO and amortization is above average, with 59% of outstanding GO debt to be retired in 10 years. The funding of the state's Public Employees' Retirement System has declined in recent years, and the June 30, 2010 funded ratio was 64.2%. Using Fitch's more conservative 7% discount rate assumption, the system's funded ratio would be a weak 57.8%. The state has consistently funded its required annual contributions and pension legislation passed in 2010 increased employee contributions to the system to 9% from 7.25% to offset increased annual funding demands.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2010;
--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'Enhancing the Analysis of U.S. State and Local Government Pension Obligations', dated Feb. 17, 2011.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897
Enhancing the Analysis of U.S. State and Local Government Pension Obligations
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=604785
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