2008-04-25 23:22:16 -

- Fitch Ratings has assigned an 'AA+' rating to the Virginia Public School Authority's (VPSA) $59,870,000 school educational technology notes, series VIII. The notes, scheduled for competitive sale on April 30, will be due Apr. 15, 2009-2013 and are not callable. In addition, Fitch affirms the rating on VPSA's $116.6 million in outstanding educational technology notes and approximately $2.9 billion

of 1997 resolution bonds at 'AA+'. The Rating Outlook is Stable.

The notes are secured by appropriations from the Commonwealth's literary fund and, in the event of literary fund insufficiency, a 'sum sufficient' appropriation from the Commonwealth's general fund. The sum sufficient appropriation requires the governor to include provision for debt service in the annual budget submission. Appropriations have been made for the upcoming biennium's debt service. Additional strength derives from the short five-year term of the notes, the prior literary fund appropriation experience for other educational equipment debt, the commonwealth's fundamental strengths and commitment to education, and the Commonwealth's 'AAA' general obligation (GO) bond rating.

Proceeds of the technology notes will be used to make grants to local schools to continue the Commonwealth's program of financing educational technology equipment and network infrastructure upgrades in public schools, with localities required to provide matching funds equal to 20% of the grant.

The literary fund is a constitutional perpetual fund for school purposes that receives escheats, fines, forfeitures, unclaimed property, and unclaimed lottery prizes. The fund received $169.3 million from these sources in fiscal 2007, up from $167.5 million in fiscal 2006 and $132.5 million in fiscal 2004. The literary fund's cash and investment balance was $146.3 million on June 30, 2007, an increase from $119.5 million a year earlier. Since fiscal 2002, appropriations from the literary fund for Virginia's teacher retirement fund have been made annually, alleviating general fund pressures. In fiscal 2007, $116 million was appropriated.

Virginia's 'AAA' rating is based on its substantial resources, conservative approach to financial operations including periodic revenue forecast updates, and careful attention to the level of its debt obligations. Revenue estimates for the current biennium were revised downward on two occasions, leading to an expected shortfall of nearly $750 million for fiscal 2008. The imbalance was addressed through expenditure reductions, operational savings measures, the use of unspent carry-over funds and a draw of approximately $300 million from the Commonwealth's revenue stabilization fund, which had been fully funded at nearly $1.2 billion at fiscal 2007 year end. The budget for the 2008-2010 biennium has been completed and projected general fund expenditure growth is modest compared to the previous budget. Increased spending for education and health initiatives are offset somewhat by maintaining operational savings instituted in the current budget and through increased capital bonding that previously would have been funded from operations.

The Commonwealth benefits from a diverse economic base and high wealth levels, although the economy has softened over the last year. Strong employment gains in recent years moderated in 2007 to 0.9%, slightly below the national growth rate; March 2008 employment was up only 0.3% from the prior year. State unemployment, at 3% for 2007, increased to 3.7% in March 2008. Preliminary 2007 personal income figures indicate annual growth of 5.6%, short of national growth of 6.2%. At $41,347, personal income per capita equaled 107% of the U.S. average in 2007, ranked 9th among the states.

The Commonwealth's debt ratios are low-to-moderate and have grown over the past fiscal year. As of June 30, 2007 net tax-supported debt was $7.5 billion, equal to $974 per capita and 2.4% of 2007 personal income. GO debt now constitutes approximately 17% of net tax supported debt, with the remainder principally represented by various appropriation credits. Anticipated bonding for higher education and transportation improvements will likely result in further debt growth.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Kenneth T. Weinstein, 212-908-0571
Richard J. Raphael, 212-908-0506
Douglas Offerman, 212-908-0889
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