Fitch Bond Statement on NH GO Bond Sale 10-18-2011

8/3/2019 Fitch Bond Statement on NH GO Bond Sale 10-18-2011

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FITCH RATES NEW HAMPSHIRE'S $100MM GOBONDS 'AA+'

Fitch Ratings-New York-18 October 2011: Fitch Ratings has assigned an 'AA+' rating to the Stateof New Hampshire's general obligation (GO) capital improvement bonds consisting of:

--$100 million 2011 series B

The bonds are expected to sell Oct. 20, 2011 via competitive sale.

Fitch also affirms the 'AA+' rating on New Hampshire's approximately $939 million outstandingGO bonds, including bonds issued by the Pease Development Authority.

The Rating Outlook is Stable.

KEY RATING DRIVERSNew Hampshire's economy had been strong and resilient when compared to surrounding statescoming into the economic downturn and strong growth is expected to return as the national

economy recovers.

New Hampshire benefits from high education and wealth levels, low unemployment, and aboveaverage job growth, offset to some extent by slow population growth and an aging demographicprofile.

With no sales or income tax, the state's finances are dependent on an unusual mix of taxes -business taxes, real estate transfer taxes, cigarette and alcohol taxes, etc., which are economicallysensitive and underperformed through the economic downturn. Only modest growth is expected inthe current biennium.

The state takes timely action to maintain budgetary balance. The enacted budget includes reductionsto local governments, a significant shift in how hospitals are reimbursed for indigent care, flatfunding of K-12 education and higher education cuts, as well as other program consolidations andreductions.Debt levels are low, amortization is rapid, and net tax-supported debt is entirely general obligation.Pension funding has declined dramatically over the past ten years and represents a future spendingpressure.

SECURITYGeneral Obligation, full faith and credit of the state of New HampshireCREDIT PROFILEThe 'AA+' reflects New Hampshire's economic strength and resiliency and conservative debt

position. New Hampshire's economy compared favorably to surrounding states coming into theeconomic downturn and seems to be emerging from the recession at a faster pace as well. Thesestrengths are offset partly by the state's dependence on a variety of volatile taxes, which did notperform well during the recession and are expected to grow only modestly despite the state'seconomic recovery.

New Hampshire's debt structure is conservative with low debt levels, rapid amortization, andreliance on fixed rate GO or guaranteed debt. Net tax-supported debt represents a low 1.6% of 2010personal income, reflecting the historically limited role of state government. The current offeringwill finance a portion of the state's annual capital improvement program. Funding of the state'spension system has declined significantly over the past decade. As of June 30, 2010 the state's

pension system funded ratio was 58.5%, down from 89.9% in 2000. This already low funding levelmay decline with changes in actuarial assumptions, including a lowering of the investment returnfrom 8.5% to 7.75%. Improving its actuarial position will present a future spending pressure. The



state fully funds the ARC and is responsible for approximately one-quarter of the total pensionliability.

New Hampshire is a prosperous state that has shifted rapidly from manufacturing to services, as itseconomy has become more like the nation's. The state's population and job growth have generallyoutpaced New England's since 1980, benefiting from the expansion of Boston suburbs into NewHampshire and growth in the trade, transportation and utilities and other services sectors. The statedid not lose jobs year-over-year during the recent recession until December 2008 and employmentlosses remained below the national rate through the recession, with non-farm employment down3.4% in 2009 versus 4.4% nationwide and down 0.5% in 2010 versus a decline of 0.8% nationwide.

Job growth has resumed, up 1.9% in August 2011, higher than the U.S. growth rate of 1.0%.Although unemployment levels have increased significantly, the unemployment rate remains wellbelow the national average at 5.3% in August 2011 versus 9.1% for the U.S. Per capita personalincome is 109% of the nation's, ranking New Hampshire ninth among the states.

New Hampshire's tax structure, specifically its lack of a personal income or general sales tax,differentiates it from all other states except Alaska and is a key influence on financial operations.The state relies on business, real estate, and excise taxes, as well as a statewide property taxdedicated solely to education. This unique tax structure is volatile, especially the taxes on businessprofits, which are vulnerable to swings in the business cycle, and on real estate transfers, which aresensitive to housing market conditions.

The tax structure makes it difficult for the state to take advantage of the economic recovery asrevenues are only expected to grow modestly despite growth in employment. Unaudited revenuesfor fiscal 2011 were 1.4% lower than in fiscal 2010, and down 5% from the original plan. Majorrevenue sources either declined or showed just modest growth. Business taxes fell 3.9% in fiscal2011 after growing an equivalent amount in fiscal 2010. Meals and rooms tax revenue increased1.3% year-over-year while tobacco taxes fell 6.9%.

The enacted budget for the fiscal 2012 - 13 biennium assumes growth in base revenues of just .8%in fiscal 2012 and 1.6% in fiscal 2013, and relies primarily on expenditure reductions, cuts or costincreases to local governments, and shifts in funding to achieve balance. Net appropriations areapproximately 1% less than actual expenditures in the prior biennium.

The budget requires a $50 million reduction in compensation and benefit expenses, including a $20million reduction in the general fund. These cost savings are expected to be derived from reducingfunded positions, including through lay-offs, flat funding of employee health care costs, increases inemployee contributions for health insurance, and a freeze in pay increases.

Local governments will face both reduced revenues and increased expenditures as revenue sharingis suspended for the second consecutive biennium, and a long-standing state subsidy of pensioncontributions is eliminated. Prior to fiscal 2010, the state paid 35% of the local government requiredpension contribution. The subsidy was reduced in the fiscal 2010-2011 biennium and eliminated inthe current biennium, saving the state $171 million over the biennium. The K-12 education fundingformula is flat funded at $940 million per year but does not fund $100 million of prior legislative

changes to the formula. Higher education funding is reduced over $105 million.

Additional budget gap closing measures include a significant shift in how hospitals are reimbursedfor uncompensated (indigent) care, with a redirection of approximately $158 million in Medicaidenhancement tax revenue from the disproportionate share hospital program to the general fund forMedicaid provider payments. Cost savings will also be derived from consolidation in health andhuman services programs and a shift to managed care for Medicaid. Having depleted its rainy dayfund in fiscal 2009, the state has minimal reserves, a concern given the state's revenue system, butone that is mitigated by the state's proven willingness and ability to achieve budgetary balance.

Contact:

Primary Analyst:Karen KropSenior Director



+1-212-908-0661One State Street PlazaNew York, NY 10004

Secondary Analyst:Ken WeinsteinSenior Director+1-212-908-0575

Committee Chairperson

Laura PorterManaging Director+1-212-908-0575

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email:[email protected].

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by,or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of theratings.

Applicable Criteria and Related Research:--'Tax-Supported Rating Criteria' (Aug. 15, 2011);--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:Tax-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898U.S. State Government Tax-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND

DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BYFOLLOWING THIS LINK:HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHEDRATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE ATALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OFINTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIESAND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTIONOF THIS SITE.

Documents

Fitch Bond Statement on NH GO Bond Sale 10-18-2011