NEW YORK - Standard & Poor's Ratings Services said it has revised its outlook on Maine to stable from negative, and assigned its AA long-term rating to the state's series 2012 general obligation (GO) bonds.

At the same time, Standard & Poor's affirmed its AA rating on the state's previously issued GO debt, AA-minus rating on Maine Finance Authority's lease debt, and A rating on debt backed by the state's moral obligation.

"We revised the outlook based on our view of Maine's significant progress in reducing its accumulated unreserved general fund deficit and unfunded pension liability in fiscal 2011," said Standard & Poor's credit analyst Ken Rodgers. "While these developments are encouraging, MaineCare, the state's Medicaid program, continues to face operational and fiscal challenges," said Rodgers.

The AA rating and stable outlook reflect Standard & Poor's view of the state's improving economy, strong fiscal policies and practices, moderate debt and other liabilities, and adequate liquidity for the rating.

Despite the state's relatively sound financial position, Standard & Poor's expects the state to reduce the accumulated general fund deficit further, improve pension funding, tackle Medicaid-related operational and funding issues, and limit additional debt issuance. Standard & Poor's also believes the ongoing uncertainty of the federal budget process presents additional credit risk that could challenge the state in the future.

Standard & Poor's does not expect to raise or lower the rating within the two-year outlook horizon.

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