Moody’s Investors Service upgraded West Virginia’s general obligation debt one notch to Aa1 Friday, citing conservative fiscal management and favorable financial performance.
The upgrade affects $602 million of GO bonds outstanding. Moody’s concurrently upgraded the state’s $783 million of outstanding lease revenue bonds to Aa2 from Aa3. The outlook on both credits is stable.
“West Virginia is one of only a few states that did not experience a budget shortfall during fiscal 2009 primarily because of the state’s conservative budgeting practices,” Moody’s said in a rating report. “Improvement in the funding ratio for the state’s pension systems and actions taken to reduce the outstanding other post-employment benefit liability are also positive steps.”
The rating incorporates the state’s historically underperforming economy, which Moody’s said has recently shown signs of modest growth and diversification.
The state projects it will have ended fiscal 2010 with an operating surplus of roughly 2.5% of revenues.
“This is going to really help us to lower the cost of borrowing and use those savings for other things for our citizens,” said Secretary of the Department of Revenue Virgil Helton. “We have been working to get our fiscal house in order since [Joe Manchin] became governor.”
West Virginia did not include in its fiscal 2011 general fund budget any funds that would come from an extension of Federal Medical Assistance Percentages payments for medical and social service programs. Some state and local governments have included the additional federal funding even though Congress has not approved it. By not including the FMAP funding, West Virginia avoided the risk presented by budgeting for but not getting the funding, Moody’s said.
The state also accounted for the end of stimulus funding from the American Recovery and Reinvestment Act. The budget assumes a 2% growth in revenues and essentially zero growth in expenditures.
By building a budget based primarily on recurring revenues and expenditures, the state is well positioned to maintain a structural balance once the ARRA funding is exhausted, Moody’s said.
The state’s unemployment rate in May was 8.9% compared to 9.7% nationally, according to the U.S. Bureau of Labor Statistics.
Moody’s cited below-average per-capita income levels, significant unfunded pension liabilities, and above-average concentration in the coal industry as credit weaknesses.
The GO rating applied to $35.1 million of tax-exempt GO state road refunding bonds that competitively priced on Thursday. Hutchinson, Shockey, Erley & Co. won the deal with a true interest cost of 3.1521%. On the short end, the bonds yielded 2.67% on a nine-year maturity with a 4% coupon, 18 basis points higher than the Municipal Market Data triple-A scale. The bonds yielded 3.26% on the longest maturity of 2023, with a 4% coupon, 19 basis points higher than the Municipal Market Data Triple-A scale.
Jackson Kelly PLLC was bond counsel and Public Resources Advisory Group was financial adviser.
Fitch Ratings rates West Virginia GOs AA with a positive outlook and Standard & Poor’s rates the state AA with a stable outlook.
West Virginia has sold $220 million of new-money GO bonds and $450 million of GO refunding bonds since 2000, according to Thomson Reuters.
