2009-11-30 22:50:55 -

Fitch Ratings has assigned an 'AA+' rating to the Virginia College Building Authority's (the authority) 21st Century College and Equipment Programs bonds as follows.

--$57,435,000 educational facilities revenue bonds, series 2009F-1;

--$389,950,000 educational facilities revenue bonds, series 2009F-2.

The bonds are scheduled for competitive sale on Dec. 2, 2009 and will be due Feb. 1, 2011-2030. The potential exists for the 2009F-2 bonds to be sold as Federally Taxable Build America Bonds. At the same time, Fitch has affirmed the 'AA+' ratings on the authority's approximately $2.25 billion in outstanding debt (including both this program and the 21st Century College and Equipment Program). The Rating Outlook is Stable.

The bonds are payable under a master indenture from amounts appropriated by the Virginia

General Assembly, pursuant to a payment agreement. The bonds offered herein, which represent the 22nd series to be issued on a parity basis under a 1996 master indenture, provide approximately $447.4 million for 21st century capital projects. The programs have been legislatively approved and involve central commonwealth agencies, including the authority and the commonwealth's treasury board, which approves all bond issues payable from commonwealth appropriations. The programs and the higher education system have broad state support.

The commonwealth's 'AAA' rating reflects its substantial economic resources, conservative approach to financial operations, which includes periodic revenue forecast updates, and careful attention to the level of its debt obligations. While the national recession has affected state revenues, resulting in downward revisions totaling $5.6 billion over the course of the 2008-2010 biennium, Virginia has implemented balancing measures which include appropriation cuts, the replacement of pay-as-you-go capital spending with bonding, staff reductions, use of portions of federal stimulus monies for Medicaid and state fiscal stabilization, and a withdrawal of $490 million from the revenue stabilization fund in fiscal 2009. An additional withdrawal of $283 million was recently proposed, though legislative approval will be necessary. At the end of fiscal 2010, the fund is expected to hold approximately $300 million after the draw, representing 2.1% of fiscal 2010 revenues, down from $575 million at the end of fiscal 2009.

The mid-biennium budget bill originally proposed ending the 2008-2010 biennium with approximately $160 million in fund balance. Total commonwealth flexibility heading into fiscal 2011, inclusive of the balance in the revenue stabilization fund and expected stimulus monies for K-12 and higher education purposes, was projected to total over $1.2 billion, or approximately 8.7% of fiscal 2010 revenues. However, revenue performance through the balance of fiscal 2009 was nearly $300 million below February 2009 estimates. Fiscal 2009 general fund revenues declined by 9.2% compared to the prior year, versus the projected decline of 7.3%. Sales tax receipts declined by 5.6%, falling further than the expected decline of 3.7%, while net individual income tax receipts declined by 6.3%, a greater margin than the projected 4.1% rate of decline. Moreover, the fiscal 2010 forecast was lowered most recently in August 2009, with total general fund revenues expected to decline by 1.6% in contrast with a 4% growth expectation as of the prior forecast.
The governor has proposed corrective measures totaling $1.35 billion, inclusive of the additional revenue stabilization fund withdrawal noted earlier, to meet the fiscal 2009 shortfall and lowered expectations for fiscal 2010. Commonwealth flexibility going into fiscal 2011, should revenues meet the lowered expectations, would total approximately $634 million, or 4.5% of fiscal 2010 revenue. However, revenue performance through October 2009 is short of the lowered expectations, and a revised forecast is expected in December.

The commonwealth benefits from a diverse economic base and high wealth levels. Strong employment gains in recent years moderated in 2007 to 0.9%, slightly below the national growth rate, and figures for 2008 indicate that state employment declined 0.1% for the year. Employment contraction has accelerated since fourth-quarter 2008, and October 2009 employment was down 2.4% from the prior year, which compared favorably with a national loss of 4.2% over the same period. State unemployment, at 4% for 2008, increased to 6.6% in October 2009, lower than the national rate of 10.2%. Personal income growth for 2008 was 3.1%, slightly ahead of national growth of 2.9%. At $44,224, personal income per capita equaled 110% of the U.S. average in 2008, ranking seventh among the states.

The commonwealth's debt ratios are in the lower moderate range and have grown over the past fiscal year. As of June 30, 2009, net tax-supported debt totaled $8.7 billion, equal to $1,125 per capita and 2.5% of 2008 personal income. General obligation debt constitutes approximately 19% of net tax-supported debt, with the remainder principally represented by various appropriation credits. Capital needs for higher education and transportation improvements remain large.

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Fitch Ratings, New YorkKenneth T. Weinstein, 212-908-0571Karen
Krop, 212-908-0661orMedia Relations:Cindy Stoller,
212-908-0526Email: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com