NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' underlying rating to approximately $200 million Turnpike Authority of Kentucky (the authority) economic development road revenue bonds, 2008 series A. The bonds are expected to be offered through negotiation during the week of July 28. Fitch has also affirmed the 'AA-' rating on the $5.0 billion of appropriation bonds previously issued by Kentucky agencies. The Rating Outlook is Negative.The Commonwealth of Kentucky's (the commonwealth) debt is primarily in the form of lease rental bonds, requiring appropriation. The commonwealth's 'AA-' lease appropriation rating on most state appropriation bonds, including the road revenue bonds, recognizes the well-established mechanism for lease financing, highlighted by automatically renewable leases, and broader credit characteristics. The Negative Outlook reflects plans to continue to deplete fund balances and virtually drain the budget reserve trust in the new biennium that began July 1, 2008. Further, Fitch remains concerned about weakening pension funding levels and the commonwealth's rising debt position as an additional $1.65 billion in debt has been authorized for the biennium.
Road fund bonds are secured by payments appropriated by the commonwealth under a lease between the authority and the transportation cabinet. The bonds are paid from resources of the road fund; principally fuel, motor vehicle usage, license, and privilege taxes and fees. Unaudited revenues available for lease-rentals grew 1.3% in fiscal 2008, inclusive of legislative changes to tax and fee rates and to revenue-sharing requirements, and covered lease-rental obligations 6.2 times (x) before and 3.4x after operating and maintenance costs. The motor vehicle usage tax, imposed on new or used motor vehicles transactions, remains the largest contributor to available revenues, at 41% of receipts, but was down 1.3% in fiscal 2008. Primarily reflecting motor fuel rate increases, total fiscal 2008 road fund revenues grew 3.0%, prior to revenue-sharing, but were 1.6% below estimate.
Kentucky had enjoyed favorable revenue performance generally since the economic downturn earlier this decade. Such performance bolstered the commonwealth's general fund in fiscal 2006, bringing the ending undesignated balance to its highest level since fiscal 2002. To manage the fiscal effects of earlier tax reform, the fiscal 2007-2008 biennial budget relied on use of the general fund balance, along with other fund transfers and appropriation lapses, and sought to control expenditures, especially in Medicaid. Following a budgetary surplus at the end of fiscal 2007, revenue growth for fiscal 2008 slowed and the commonwealth's consensus forecasting group revised expectations downward on three occasions since August 2007. Total general fund collections grew 1.1% in fiscal 2008 and were 0.3% above revised estimates - owing to individual income tax receipts. Budgetary balance is largely achieved in the current 2009-2010 biennial budget through the depletion of undesignated and budget reserve trust balances. Total reserve balances at the end of the biennium are expected to be just 0.3% of fiscal 2010 general fund revenues, down from 3.2% estimated for fiscal 2008.
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