OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following general obligation (GO) bonds of the state of Utah:

--\$218.97 million GO bonds, series 2015.

The bonds are expected to sell via competitive bid on March 31, 2015.

The Rating Outlook is Stable.

SECURITY

General obligation, full faith and credit of the state of Utah.

KEY RATING DRIVERS

CONSERVATIVE APPROACH TO DEBT AND FINANCE: The state's conservative debt and fiscal policies have kept debt levels moderate and quickly amortizing, and have allowed for successful and timely action when addressing budgetary imbalances.

POSITIVE FINANCIAL RESULTS: The state has a history of taking action to close budgetary gaps and has prioritized building reserves.

STRONG LIABILITY POSITION: Utah's liabilities are below average for a U.S. state with rapid principal amortization, moderate debt burden despite an increase in debt for transportation needs, and below average unfunded pension liabilities.

SUCCESSFUL GROWTH MANAGEMENT: The state benefits from a growing and diversifying economy and has successfully managed associated operating and capital spending pressures, especially for education and transportation.

RATING SENSITIVITIES

The rating is sensitive to fundamental change in the credit characteristics of the state, including a failure to respond to changes in the economy that result in budget gaps or an unexpected change in debt profile.

CREDIT PROFILE

Utah's rating and outlook reflect conservative debt and fiscal policies, which have kept debt levels moderate and quickly amortizing, and have allowed for successful and timely action when addressing budgetary imbalances. Longer term prospects for the economy are for ongoing expansion and diversification and recent growth has been strong.

EXPANDING POPULATION AND ECONOMY
Utah has been characterized in recent years by rapid population growth and an expanding and diversifying economy. Utah typically is among the fastest growing states in terms of population, increasing by 23.8% from 2000 to 2010 and by 5% since 2010, more than twice the U.S. rate. The expansion reflects higher than average birth rates - Utah is the youngest state in terms of median age - as well as high family formation rates.

After several years of greater-than-average employment growth, Utah began to lose jobs in mid-2008, trailing the nation into the recession. Utah employment declined 5.1% in 2009, higher than the 4.3% national rate of job loss. These losses began to abate in early 2010 and non-farm employment began to increase in July 2010. The U.S., in comparison, did not begin to experience job growth until September 2010. Growth in non-farm employment has outpaced the U.S. in every month since July 2010, increasing 2.1% in 2011, 3.5% in 2012, and 3.2% in 2013, well higher than the U.S. rates of 1.2%, 1.7%, and 1.7% in those years. Most recently, non-farm employment increased 3.9% year-over-year, exceeding the U.S. rate of 2.3% as of December 2014. Employment gains are especially strong during this period of economic expansion with job recovery equal to 206% of jobs lost during the recession, well above the median rate for the U.S. of 106%.

Utah is experiencing job growth across all sectors, including year-over-year growth of 4.3% in trade, transportation, and utilities - the largest employment sector in the state, 2.1% growth in business and professional services, and 4% growth in leisure and hospitality. As would be expected given the state's demographic profile, the construction sector is showing a relatively strong rebound, with employment growth of 11.9% year-over-year in December. Utah's unemployment rate remains well below the national average at 3.5% in December 2014, 63% of the national rate. The state's per capita personal income is heavily influenced by its young demographics; at 81% of the U.S. average, Utah ranks among the last of the states by this metric.

STRUCTURALLY BALANCED BUDGET
The state's financial operations are typically structurally balanced with maintenance of sound reserves. The budget for the current fiscal year, fiscal 2015, was structurally balanced based on a conservative estimate of modest revenue growth and did not fund any major new initiatives. As has been the case for several years, the budget funds increases in K-12 and higher education, and included small pay and benefit increases for state employees.

Major revenue sources have resumed growth. Overall, combined general and education fund revenues increased 9.7% in fiscal 2013, followed by a slower 1.7% growth in fiscal 2014 that can be attributed to shifts in personal income tax collections into the prior year due to federal law changes. The fiscal 2015 revenue estimate for the general and education funds has been revised upward by approximately \$250 million, reflecting strong personal and corporate income tax collections. Sales tax revenues deposited in the general fund are demonstrating slow but steady growth despite earmarking of a portion of the growth in sales tax revenues for transportation purposes.

The state legislature has passed the fiscal 2016 budget, again incorporating a conservative estimate of revenue growth and increased spending for education as well as two modest tax increases - in gas taxes for transportation, and in property taxes to reduce local tax burden. While the state does not participate in the expansion of Medicaid related to the Affordable Care Act as requested by the Governor, the legislature established a working group to develop a solution for expanding health care to lower income residents. The legislature also increased the limits on permitted funding of the state's rainy day funds from 8% to 9% in the case of the general fund and from 9% to 11% for the education fund. State law requires 25% of surpluses to be deposited to these reserves and they totaled \$401.5 million at the end of fiscal 2014 (7.4% of combined general and education fund revenues).

CONSERVATIVE DEBT POSITION
The state's approach to debt issuance is conservative, relying primarily on GO bonds. The state does not issue variable rate debt, or issue short-term or cash-flow notes. Amortization is rapid as the state has historically limited its bond maturities to seven years other than for transportation related bonds for which it permits 15 year amortization.

Debt continues to represent a moderate burden on resources with net tax-supported debt of approximately \$3.1 billion equal to 2.9% of 2013 personal income. Amortization of GO bonds remains rapid, with 85% of GO debt maturing in 10 years. The current offering is a refunding for debt service savings that was delayed since August 2014 due to a question about the state's debt limit raised by the state auditor that has been resolved.

Pension funding remains above average, although the funded ratio has declined in recent years, reflecting both the downturn in the market as well as a revision of the actuarial return assumption from 8% to 7.75% and subsequently to 7.5%. The state consistently funds the ARC. As reported under the new reporting requirements of GASB 67/68, the fiduciary net position as a percentage of the total pension liability for the non-contributory system, which covers most state workers, was 85.3% as of Dec. 31, 2013. The combined ratio of debt and unfunded pension liability, using Fitch's more conservative 7% discount rate assumption and Dec. 31, 2013 figures for comparative purposes, is below average at 4.8% of personal income. This compares favorably to the 6.1% median for U.S. states, ranking Utah 18th among the states.