NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA+' rating to the following State of Mississippi general obligation (GO) bonds:
--$39.74 million GO bonds, series 2012G (taxable);
--$136.68 million GO bonds, series 2012H.
The bonds are expected to sell via negotiation the week of Oct. 15, 2012.
In addition, Fitch affirms the 'AA+' rating on the state's $4.2 billion in outstanding GO bonds and the 'AA' rating on $201 million of appropriation-backed bonds issued by the Mississippi Development Bank (Dept. of Corrections).
The Rating Outlook is Stable.
The bonds are general obligations of the state, with its full faith and credit pledged.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: Mississippi's financial management is conservative and action to maintain balance amid revenue weakness has been prompt. Stringent budget control mechanisms exist and reserve levels remain sound. The 98% budgeting policy, which was suspended through the recession, has been reinstated for fiscal 2013.
MANUFACTURING-BASED ECONOMY: The state's socio-economic profile is relatively weak, with wealth and educational attainment indicators that lag national levels. The economy continues to diversify and some successful economic development initiatives should bolster employment in the coming years; however, the manufacturing concentration well exceeds national levels.
HIGH LIABILITIES DUE TO PENSIONS: Mississippi's debt burden is moderate, but above average, and is largely in the form of GO debt. Unfunded pension liabilities, measured as a percent of personal income, are among the highest of the states despite a record of funding required annual contributions.
Mississippi's long-term GO rating of 'AA+' and Stable Outlook reflect the state's consistently conservative financial practices and established reserves. The gradual draw-down of the Working Cash Stabilization Fund, which had reached a peak funding level of $362 million in fiscal 2008, allowed the state to manage reductions in tax revenue associated with the recession. The fund is estimated to hold $115.6 million as of the end of fiscal 2012, down from $191 million at the end of fiscal 2011, a sign of the slow rebound in revenue being experienced by the state. Revenue estimating continues to be conservative, with the forecast for the current fiscal year requiring no growth over final estimated prior-year results.
Economic weakness related to the recession resulted in revenue declines of 4.3% and 4.9% in fiscal years 2009 and 2010, respectively. Revenues began to rebound in fiscal 2011 with 2.4% growth, and fiscal 2012 unaudited general fund revenues are reported to have exceeded forecast, growing an estimated 5.9% year-over-year. Balance was maintained through budget restraint, often with mid-fiscal-year adjustments, the application of federal stimulus monies, and the gradual drawdown of reserves accumulated prior to the recession. The state did suspend its 98% budgeting policy for fiscal years 2008 through 2012, but has returned to this historical practice in the fiscal 2013 budget as the economy and associated revenues improve.
Budgeted spending in fiscal 2013 reflects growth of 4.3% over estimated fiscal 2012 spending, while revenues are assumed to be flat. To achieve balance, the budget includes 5.5% cuts to many agencies and uses cash balances in several funds, some of which are expected to be replenished by surpluses generated by the return to the policy of appropriating only 98% of expected revenues.
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. However, the state has been lagging the U.S. in the recovery. Employment growth, which resumed at a slow pace in mid-2010, has reversed over the past year, with year-over-year job losses of 0.1% in 2011 and 0.3% in August 2012. U.S. employment has continued to grow at 1.3% in August. The unemployment rate has fallen from its peak of 11% in February 2010, but remains above the U.S. rate at 9.1% in August 2012. With the state's investment in economic development projects designed to diversify and expand the economy, a return to slow growth is expected.
Income performance in Mississippi had been exceeding that of the U.S. in recent years; however, the weak job performance is reflected in personal income growth in 2011 that was just 76% of the national rate. Per capita personal income in 2011 of $32,176 is just 77% of the U.S. level, ranking Mississippi 50th among the states.
The state's net tax supported debt of approximately $5.2 billion represents a moderate but above-average burden on resources at 5.6% of 2011 personal income. Debt is largely GO and amortization is average, with 55% of outstanding GO debt to be retired in 10 years.
Pension funding continues to decline, although the state has consistently funded its required annual contributions and passed pension legislation in 2010 that increased employee contributions to the system to 9% of payroll from 7.25% to offset increased annual funding demands. The funding of the state's Public Employees' Retirement System was 62.2% as of June 30, 2011. On a combined basis, the burden of net tax-supported debt and adjusted unfunded pension obligations that are attributable to the state equals 18.6% of 2010 personal income, well above the 6.6% median for U.S. states rated by Fitch, and is amongst the weakest of the states. Nevertheless, Fitch notes that the demands of debt and pensions on the state's operating budget continue to be manageable.
The current offerings finance various economic development loans and grants, as well as various capital improvements.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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', Aug. 14, 2012;
--'U.S. State Government Tax-Supported Rating Criteria', Aug. 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Karen Krop, +1-212-908-0661
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Source: Fitch Ratings