OREANDA-NEWS. S&P Global Ratings assigned its 'AA+' rating to the Virginia Public Building Authority's (VPBA) series 2016A public facilities revenue bonds, 2016B public facilities revenue refunding bonds, 2016C public facilities revenue bonds (AMT), and 2016D public facilities revenue bonds (taxable) issued for Virginia. At the same time, we affirmed our 'AAA' rating on Virginia's general obligation (GO) debt outstanding, our 'AA+' rating on the state's appropriation-backed debt, and our 'AA' rating on the state's moral obligation debt. The outlook on all ratings is stable."The rating on the VPBA bonds reflects our opinion of the governor's inclusion of sufficient amounts to pay debt service on the bonds and other expenses in each biennial or supplemental commonwealth budget," said S&P Global Ratings credit analyst Carol Spain. Other factors include:The General Assembly's appropriation of such amounts as payment for principal and interest due on the bonds, and The general credit quality of Virginia. The 'AAA' rating on Virginia's GO debt reflects our view of the commonwealth's: Strong and diverse economy, although growth rates have slowed in recent years tied to the effects of federal sequestration; Strong financial policies and practices; Long history of proactive and conservative financial management despite structural misalignment over the past biennium; and Moderate debt levels that are expected to remain so based on the commonwealth's debt capacity model. Weaker-than-expected fiscal 2016 general fund revenue performance indicates that the commonwealth faces a significant revenue shortfall for the 2016-2018 biennium. While the size of the shortfall is manageable relative to the size of the budget, in our view, already lean margins, coupled with spending reductions in recent years, could impair decisions to make structural reforms.

"The stable outlook reflects the commonwealth's proactive identification of revenue shortfalls and historically demonstrated active budget management to alleviate projected deficits," added Ms. Spain. It also reflects recent measures to increase pension funding and structural improvements in the 2016-2018 biennium budget, although we recognize that recent revenue shortfalls could tip the state into imbalance. In addition, the outlook incorporates the state's strong and diverse economy and unemployment rate that has remained consistently below U. S. levels despite recent deceleration following federal sequestration.

We have viewed the commonwealth's gap-closing measures in the 2014-2016 biennium as predominantly one-time in nature and therefore a weakness, in our view, but we also note that this is partly mitigated by the commonwealth's conservative approach to re-estimating its revenue. Virginia again has identified a budget gap for the current biennium, and it has yet to identify a response. If the commonwealth can't make sufficient adjustments to structurally balance the budget, in our view, this would signify a trend of imbalance and weakened budget management practices, which could negatively pressure the rating. Additionally, if the state chooses to significantly use reserves to address the projected budget gap, we would consider this action out of step with the current economic cycle and a reversal of the commonwealth's past practices of building reserves during periods of economic growth. In our opinion, depleted reserves could weaken its ability to respond to economic and financial downturns and be an indication of weaker credit quality.