ATLANTA - Standard & Poor's Corp. has changed its outlook on West Virginia's A-plus rated general obligation debt to positive from stable, taking the unusual step of holding out hope for an AA and specifying what the state must do to achieve it.

"S&P believes that continued emphasis by the state on its financial reporting and management, combined with the balanced fiscal operations the state has generated over the past three years, supports the potential consideration of a double-A category rating in the three-year time horizon," according to a report co-authored by Steve Nelli, an associate director, and Robert Swerdling, a director.

The report, issued on Friday, came as the state was preparing for today's sale of $58.8 million of general obligation highway refunding bonds. The change in outlook affects the state's $325 million of outstanding GO debt.

"We are not usually quite so specific in stating the steps as issuer needs to take to get an upgrade, but we felt that West Virginia has had a good track record recently, and we didn't want to beat around the bush." Mr. Nelli said.

The report praises the state for maintaining its financial reserves, increasing education funding, and beginning to address capital needs under Gov. Gaston Caperton. The first-term governor is seeking reelection this year.

However, the report cautions that the state will not be upgraded unless it checks the growth of unfunded liabilities that have accrued in its teachers' retirement and workers' compensation funds. Those unfunded liabilities total almost $4 billion.

"S&P is not expecting the state to immediately close this gap, but rather is looking for West Virginia to meet its current pension and insurance obligations with current revenues in these funds, as well as put in place plans to bring the funds into actuarially sound positions over a reasonable period of time." the report says.

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