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Summary:
New Hampshire; GeneralObligation; General ObligationEquivalent Security
Primary Credit Analyst:
Henry Henderson W, Boston (1) 617-530-8314; henry_henderson@standardandpoors.com
Secondary Credit Analyst:
Karl Jacob, New York (1) 212-438-2111; karl_jacob@standardandpoors.com
Table Of Contents
July 9, 2010
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Summary:
New Hampshire; General Obligation; GeneralObligation Equivalent Security
Credit Profile
US$44.345 mil GO & GO rfdg bnds ser 2010A&B due 06/01/2020
Long Term Rating
AA/Stable NewNew Hampshire GO
Long Term Rating
AA/Stable Affirmed
Rationale
Standard & Poor's Ratings Services assigned its 'AA' long-term rating to New Hampshire's general obligation (GO)refunding bonds series 2010B, affirmed its 'AA' long-term rating and underlying rating (SPUR) on the state'sexisting GO debt, affirmed its 'AA' rating on the state-guaranteed New Hampshire Municipal Bond Bank bonds,and affirmed its 'AA/A-1+' ratings on New Hampshire Business Finance Authority's GO debt. The long-termcomponent of the rating on the authority's bonds is based on the New Hampshire GO debt rating. The short-termcomponent of the authority's bonds is based on a bank facility from the Bank of New York Mellon.In our opinion, the ratings reflect the state's:
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Strong income levels and relatively low unemployment, and
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Low debt burden.These strengths are somewhat offset in our view by New Hampshire's:
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Significant decline in reserves for fiscal 2009, which brought the unreserved general fund balance to less than 1%of expenditures; and
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Low pension funding level, which, while currently at 58%, is well below most other states' pension funding.The bonds are general obligations of New Hampshire, and are secured by the state's full faith and credit pledge.Proceeds will restructure debt outstanding for an estimated $48.3 million of budgetary savings in fiscal 2011, as partof the state's plan to eliminate the fiscal 2011 budget gap. This restructuring will result in an estimated net presentvalue loss of $1.2 million over the issue's 10-year life. In March, the state refunded a smaller amount of debt, withthat refunding structured to reduce debt service by about $3.2 million in each of fiscals 2010 and 2011.State officials project that recently approved legislation will close an estimated $295 million budget gap for the fiscal2010-2011 biennium (equal to 6.8% of combined general and education fund revenue), which was primarily due toa $198.2 million revenue shortfall per the April 2010 revenue estimate. The plan includes a drawdown of the state'srainy-day fund to $0 at the end of fiscal 2010 before rebuilding it to $14.6 million at the end of fiscal 2011, whichwe consider to be relatively thin. The plan also contains a number of other one-time savings or revenue items,including:
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The acceleration of $80 million in American Recovery and Reinvestment Act education stabilization funds to
Standard & Poor’s
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July 9, 2010
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2010 from fiscal 2011, which would reduce the 2010 deficit but worsen the 2011 projected deficit;
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$60 million from selling, or monetizing, state assets;
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A $48 million revenue increase from a projected extension of the Federal Medicaid Assistance Program beyond itscurrent end date of Dec. 31, 2010. We believe this assumption introduces some risk if the extension is notauthorized, and while we believe the state will adjust in a timely manner if it is not authorized, doing so willrequire making difficult decisions;
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The transfer of $20.2 million in dedicated fund balances; and
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$40 million of general fund budgetary savings from the current debt restructuring.In addition to these nonrecurring items, the plan also includes $57 million of reductions over the biennium to localaid and other state services. State officials have identified contingencies for additional expenditure reductions in theevent that some of the identified expense reductions or new revenues are not achieved. The June revenue collectionsfor the general and education funds were $17.2 million more than the budget plan.The state has interfund borrowed a total of $75 million from its state revolving fund in January and February 2010,and repaid these loans in June; officials authorized up to $200 million of revenue anticipation notes, including the$75 million already borrowed.Standard & Poor's considers New Hampshire's financial management practices "good" under its FinancialManagement Assessment methodology, indicating financial practices exist in most areas, but that governanceofficials might not formalize or regularly monitor all of them.In our opinion, the state's debt burden is low. The net general fund debt is less than $1,000 per capita and less than1% of true value. Amortization is above average, with officials retiring about 70% of general fund debt over 10years. New Hampshire's GO debt portfolio is entirely fixed-rate except for its commercial paper program, of which$50 million is currently outstanding. As of June 30, 2009, the unfunded pension liability was $3.54 billion, a fundedratio of 58.3%. This funded ratio is low compared with other states' ratios, and represents a large long-term fixedcost that will likely pressure the operating budget. New Hampshire's fiscal 2008 other postemployment benefitsaccrued liability (the latest figure available) was $2.56 billion, with an annual required contribution of $207.1million.
Finances
2009 results
Fiscal 2009 ended with a $79.9 million drawdown of the state's revenue stabilization rainy-day fund, which broughtthe balance to $9.3 million, or 0.2% of general fund and education fund revenues. The shortfall was due to generaland education fund revenues significantly underperforming the budgeted plan for fiscal 2009, with the largestdeclines coming in business taxes ($186 million, 28% below plan) and real estate transfer taxes ($65 million, 45%below plan). Total general and education revenue was $313 million, 12% below the plan. The combined generaland education fund balance was lower than the $17.3 million balance in fiscal 2003, which also equaled less than1% of revenues. The deficit occurred despite significant budget adjustments during the year, including:
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The reduction of expenditures and transfer of dedicated funds by a total of $108 million;
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The use of $56.5 million of federal stimulus funds from the enhanced Medicaid match and state fiscalstabilization fund; and
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Summary: New Hampshire; General Obligation; General Obligation Equivalent Security
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