Fitch Rates Ohio Treasurer of State $70MM Bonds 'AA'; Outlook Stable
--$70 million series 2015B (Adult Correctional Building Fund Projects).
The bonds are expected to be sold via negotiation the week of Nov. 2, 2015.
The Rating Outlook is Stable.
The bonds are special obligations of the state, payable from payments under lease agreements between the Ohio Public Facilities Commission (OPFC) and the Department of Rehabilitation and Correction (DRC). The lease agreement is subject to biennial appropriation from the state's general revenue fund (GRF).
KEY RATING DRIVERS
APPROPRIATION MECHANISM: The rating on the bonds backed by Ohio's lease appropriation, one notch below the state's general obligation (GO) rating, reflects the state's general credit standing, sound lease structure, and constitutional authorization for these types of bonds.
BROAD ECONOMY WITH LARGE MANUFACTURING SECTOR: The state's economy is broad and diverse, although manufacturing remains a disproportionally large sector. The state's economy is expanding but at a slower pace than immediately following the recession. The unemployment rate is under the national average.
MODERATE LIABILITY BURDEN: The state's debt burden is moderate and rapidly amortized. Debt is typically conservatively managed and primarily consists of GOs. On a combined basis, outstanding debt and pension obligations are manageable and a well below-average burden on the state.
DEMONSTRATED ABILITY TO MANAGE BUDGET CHALLENGES: The state generally has a careful approach to financial operations and has consistently managed to achieve budgetary balance. The state's budget stabilization fund (BSF) is fully funded.
STATE GO CREDIT QUALITY: The rating is sensitive to changes in the state's 'AA+' GO rating to which it is linked.
The bonds currently offered are secured by rental payments that are appropriated biennially under a lease agreement between the OPFC and the DRC, as noted above. The debt is authorized by the state's constitution and secured by the state's pledge of legislative appropriation, with the lease renewable biennially until the bonds are repaid.
The treasurer of state is required to submit an estimate of the debt service requirements to each department as well as the director of budget and management prior to the start of each fiscal year. The trustee does not have the ability to take possession of or operate leased projects. The current offering will finance various capital projects for the DRC.
LINK TO GO RATING
The state's 'AA+' GO rating, to which the current rating is linked, is based on its careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Debt is supported by an economy that is slowly adding jobs lost in the recession. First quarter tax revenues were marginally below estimate (-0.4%) with stronger than forecast sales and use tax receipts offsetting some underperformance in personal income and commercial activity taxes. Tax revenues increased 6.1% on a year-over-year basis, led by strong sales and use tax revenue growth.
For further information on Ohio's GO rating, please see Fitch's rating action commentary from Oct. 8, 2015, 'Fitch Rates State of Ohio GO Bonds 'AA+'; Outlook Stable', available at www.fitchratings.com.