NEW YORK--(Business Wire)--
Fitch Ratings has confirmed its underlying 'AA' rating to the
Indiana Finance Authority's (authority) conversion of $71,250,000
facilities revenue refunding bonds, series 2003C and 2003D to
term-rate period from auction-rate securities. The bonds are expected
to be offered via negotiation on July 24. Fitch also affirms at 'AA'
approximately $3 billion of Indiana's appropriation debt. The Rating
Outlook is Stable.
Originally issued by the Indiana State Office Building Commission,
the series 2003C and 2003D bonds refunded certain maturities of the
series 1995A bonds for the Wabash Valley Correctional Facility and
certain maturities of 1995B bonds of the Rockville Correctional
Facility, respectively. In 2005, all powers, duties, liabilities,
property, and records were transferred to the authority, as the state
acted to consolidate its issuers. The bonds issued for each
correctional facility provided funds to construct and equip the
facility. Separate use and occupancy agreements are in place between
the authority and the state's department of administration to provide
for the biennially renewal of rental payment.
With security derived from state appropriations, the 'AA'
long-term rating reflects the state's lease/appropriation credit, the
importance of the projects to the state, and the strength of the lease
provisions. Indiana does not issue general obligation debt, rather
meeting a bulk of its capital needs through debt issuance by the
authority. Low debt is the state's principal credit strength and,
since all debt is appropriation-backed, legislative approval is
required for projects and financings, including annual appropriation
of lease payments. The state's net tax-supported debt is just below $3
billion, which equates to a low 1.4% of estimated 2007 personal
income. While the state's Public Employees' Retirement Fund remains
nearly fully funded, the closed State Teachers' Retirement Fund, with
an unfunded actuarial liability of $10.3 billion as of June 30, 2007,
is only 45% funded. Although diversification has occurred, the state's
economy remains considerably concentrated in manufacturing, exposing
the state to economic downturns. Further, the state's improved
financial position could be pressured ultimately by the assumption of
local costs, particularly education, as part of the recently enacted
property tax reform.
In recent years, solid revenue growth enabled the state to surpass
conservative revenue estimates and build balances. Fiscal 2007 general
and property tax relief fund revenues rose 4.7% over the prior year
and the state ended the biennium with $881.5 million or nearly 7% of
revenues in combined fund balances, including the rainy day reserve.
Midway through the current biennium, state operating revenues rose
2.4% over fiscal 2007, just above estimate, on stronger than expected
personal income tax performance. The sales tax grew 2.9%. Based on
fiscal 2008 actuals, state revenues need to rise 1.8% in fiscal 2009
to meet budget. The state anticipates ending the biennium with
combined balances of nearly $875 million, or approximately 6.5% of
operating revenues, including a rainy day fund of $376 million.
The state recently enacted legislation toward bringing broad
property tax reform to the state. Among a variety of changes under the
legislation, the state assumes the remaining costs of primary and
secondary education, in addition to other costs supported currently by
local levies, funded by a 1% statewide sales tax increase, the
retention and redirection of existing property tax relief funds, and
wagering taxes from slot machines at horse racing facilities. The
state estimates that new revenues will align closely with the assumed
costs. Local property taxes are lowered, caps are placed on future
increases, and an optional local income tax is permitted. If approved
again by the legislature next year, the property tax caps will be
considered as an amendment to the state constitution in November 2010.
Indiana's economy modestly grew out of the recessionary period
early this decade, with some diversification, although a large
manufacturing presence remains. Employment rose 0.5% in 2007, well
under the nation's 1.1% rate, was on par with Indiana's performance
over the last several years. More recently, employment declined 0.4%
year-over-year in June 2008, fairing worse then the U.S. 0.1% rate of
loss. Manufacturing earnings constituted 26% of Indiana's overall
earnings in 2007, versus 12% nationwide, and just over 18% of
employment as of June 2008. This sector is experiencing broad job
losses, particularly in primary metals and transportation equipment,
down 3.5% and 6.2%, respectively, in June 2008. State unemployment
rate rose notably to 5.8% in June 2008, above the U.S. rate of 5.5%.
The state's education and health sector rose rising 1.8% in June 2008
year-over-year. Total employment in the Indianapolis MSA, with its
more diversified base, faired better than the state and U.S., growing
0.5% over the same period.
Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.
Fitch Ratings, New York
Kyle R. Gephart, +1-212-908-0661
Richard J. Raphael, +1-212-908-0506
Media Relations:
Sandro Scenga, +1-212-908-0278
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