Fitch Rates Oregon's $88MM GO Bonds 'AA+'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to the following state of Oregon general obligation (GO) bond (higher education):
--$88.355 million 2016 series C (Article XI-G tax-exempt).
The bonds are expected to sell via negotiation on or about March 15, 2016.
The Rating Outlook is Stable.
The bonds are general obligations of the state of Oregon, with the full faith and credit of the state pledged to bond repayment.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT OFFSETS REVENUE VOLATILITY: State finances are heavily dependent on the personal income tax (PIT), a volatile revenue source that declined sharply during the recession, and has since shown steady growth. The state's management reviews revenue and economic forecasts quarterly and takes measures as necessary to maintain balance. State balancing measures in downturns include reserve draws, with the state rebuilding reserves as the economy strengthens.
DIVERSE ECONOMY WITH SELECT CONCENTRATIONS: The computer and manufacturing sectors play an above-average role in Oregon's economy, which is especially influenced by international trade patterns. The state's growing population and labor force has profited from strong recent employment gains in the state.
MODERATE LIABILITY BURDEN: Debt levels are above average for a U.S. state but are only a moderate burden on resources. On a combined basis, the burden of the state's net tax-supported debt and unfunded pension obligations approximates the median for U.S. states. Other post-employment benefit (OPEB) obligations are small.
VOTER INITIATIVES CAN LIMIT FLEXIBILITY: An active voter initiative process has periodically affected state finances.
The rating is sensitive to shifts in fundamental credit characteristics, including the proactive financial management and commitment to reserve funding.
Oregon's 'AA+' GO bond rating reflects a diverse economy with some concentration in computer and electronic manufacturing and agricultural products, moderate debt levels, the state's record of prompt actions to maintain financial flexibility in challenging revenue periods, and the maintenance of financial cushion to provide protection from revenue volatility. Strong financial management is critical to the rating given a revenue structure largely dependent on the cyclical PIT, exposure to voter initiatives that can have negative fiscal impacts, and constitutional 'kicker' provisions that require the return of surplus revenues to taxpayers. There is no statewide sales tax. Corporate revenue in excess of the revenue forecast is now directed to elementary and secondary education per approval of a 2012 voter initiative.
The state's debt level is above average and pensions have been well-funded although a recent court decision to restore cost of living (COLA) increases to retirees and current employees and the adoption of more conservative pension assumptions has lowered funded ratios. Fitch expects these changes to lead to higher, but still manageable contributions in future biennia.