S&P: Ohio's Series 2016C Bonds Rated 'AA' With A Stable Outlook; GO Debt Affirmed At 'AA+'
S&P Global Ratings also affirmed its 'AA-' rating and stable outlook on Ohio's tax credit bonds issued by Columbus-Franklin County Finance Authority. (For more information on the authority, please refer to the full analysis published Nov. 19, 2015, on RatingsDirect.) Finally, S&P Global Ratings affirmed its 'AA+/A-1+' GO variable-rate demand debt backed by the state's self-liquidity. The outlook on the long-term rating is stable.
The 'AA' appropriation rating reflects our view of:Ohio's general creditworthiness (GO rating: AA+/Stable) as lessee; The state's demonstrated commitment, within both the administrative and legislative branches, to repaying appropriation-backed obligations; The strong contractual provisions of the master lease structure securing the lease appropriation bonds, including an absolute and unconditional payment provision once funds are appropriated; and The importance of appropriation debt to Ohio's overall capital bonding structure. State lease-rental payments, subject to separate biennial appropriation, secure the capital facilities lease appropriation bonds for the Parks and Recreation Improvement Fund projects. The 'AA+' ratings reflect what we view as Ohio's:Long track record of proactive financial and budget management, including the state's implementation of frequent and timely budget adjustments over time to mitigate lower revenue;Commitment to funding budget reserves that have been, and are expected to remain, instrumental in managing budget gaps through economic cycles;Improved revenue and budget performance and restoration of the budget stabilization fund (BSF), which has been increased to a statutory target of 8.5% of revenue as part of the enacted 2016-2017 budget;Vast, broad, and diverse economy, which has expanded steadily following weak performance through the past two recessions. Employment is anchored by manufacturing and includes several regional centers and corporate headquarters, in addition to a diverse service sector;Moderate debt levels, with rapid amortization and a conservatively managed capital and debt program; andSignificant pension reform changes and steady progress in funding other postemployment benefits. The stable outlook reflects our view of Ohio's improved structural budget alignment and steady economic growth, which has increased revenue and allowed for contributions to the BSF. The state, we believe, has proactively responded to budget imbalance over time, and this is also factored into our current outlook. We also note the statutory debt limits in place and meaningful reform efforts focused on postretirement liabilities, which should limit fixed-cost pressure. The pace of economic recovery and continuation of structural budget alignment will be important to future credit direction. Were financial, budget, and economic trends to improve significantly, this could result in positive credit implications. Although unlikely based on current trends and policy decisions, deterioration in structural budget alignment and a sharp decline in the reserve position could pressure the rating.