ATLANTA -- Standard & Poor's Corp. has upgraded nearly $1 billion of Kentucky's appropriation-backed debt to A-plus from A, citing the state's "dramatically improved financial position."
The rating change covers $903.3 million of outstanding Property and Building Commission lease revenue bonds, Standard & Poor's director Steve Nelli said yesterday.
The upgrade marks the first time the rating agency has changed its evaluation of this debt, which for nearly three decades has been the state's primary borrowing vehicle, Nelli said.
Standard & Poor's also has changed to stable from negative the rating outlook on the state's $15.3 million of AA-rated general obligation debt, and its $56.2 million of A-rated Kentucky Infrastructure Authority moral obligation bonds, Nelli said. In February 1993, when the state faced a fiscal crisis, Standard & Poor's revised the bonds' outlook to negative from stable.
Kentucky has not issued GOs since 1965, due to a tough referendum requirement that must be met before such bonds can be sold. Under state law, voters must approve the GOs by a two-thirds margin.
"The upgrade [of the Property and Building Commission bonds] reflects the fact that we feel very comfortable with the commitment the legislature has made to its appropriation-backed bonds," Nelli said. "For both this debt and the GOs, we have also taken into account the state's recent budgetary restraint," he added.
"In the past, Kentucky has had a habit of spending more than it takes in, even when the economy was doing well," Nelli said. "This time around they got it straight."
Nelli said Standard & Poor's had been favorably impressed by state officials' decision not to appropriate the $162.1 million budget surplus accumulated at the end of fiscal 1994, which ended June 30. Instead, he noted, the state put about $90 million into its nearly depleted budget stabilization fund. The additions brings the fund's total to about $110 million.
In addition, the rating analyst commended the state for reforming its budget process, in particular its commitment to a revenue forecasting system requiring the govemor's administration and the legislature to reach consensus.
Nelli said that Kentucky's "moderate" debt level was also a factor in the rating revisions. He noted that the state's remaining GO debt is scheduled to mature next year, and that Kentucky currently plans to retire more general fund secured bonds during the 1994-96 biennium than it will issue.
State officials expressed delight with the ratings actions.
"We are just very proud of the upgrade," said Patrick Mulloy, secretary of Kentucky's finance and administration cabinet under Gov. Brereton Jones. "It is the result of a lot of hard work."
The state's current fiscal strength contrasts sharply with the serious problems faced last year.
In July 1993, Jones was forced to cut spending by $347 million to cover an unanticipated inbalance between expenditures and revenues. Even with the cuts, however, Kentucky ended fiscal 1993 with a $40.2 million deficit and was forced to delay income tax refund payments.
In a report accompanying the upgrade, Standard & Poor's noted that the state's $10.2 billion budget for the 1994-96 biennium has "placed an increased emphasis on balancing ongoing expenditures with corresponding recurring revenues.
"This focus on fiscal stability makes it less likely that unforeseen financial emergencies will force the commonwealth to make major mid-year across-the-board budget cuts as were made in recent years," the report said. The upgrade of the Property and Building Commission debt affects a total of 16 series of these bonds, ranging from $4.1 million of project number 32, third series debt, to $367 million of project number 55 refunding bonds.
Property and Building Commission bonds unaffected by the rating changes were $1.75 million of project 16 BBB-rated revenue bonds for parks and $4 million of A-minus rated revenue project number 39 revenue bonds for an economic development project benefiting a single corporation. These bonds are dependent on specific project revenues rather than general appropriations. Moody's Investors Service continues to rate Kentucky's GOs Aa and its appropriation-backed Property and Building Commission debt A. Fitch Investors Service rates the appropriationbacked debt A plus.