OREANDA-NEWS. Fitch Ratings assigns an 'AA+' rating to the following Virginia Public Building Authority (VPBA) bonds:

--\$214,970,000 public facilities revenue bonds, series 2015A;
--\$230,995,000 public facilities revenue refunding bonds, series 2015B.

The bonds are expected to sell via competitive bid on May 19, 2015.

The Rating Outlook is Stable.

SECURITY

The bonds represent a limited obligation of the authority, payable from General Assembly appropriations.

KEY RATING DRIVERS

COMMONWEALTH APPROPRIATION OBLIGATION: The 'AA+' rating on the VPBA bonds, one notch below the commonwealth's 'AAA' Fitch GO rating, is based on debt service paid from direct payments made by the Commonwealth of Virginia, subject to legislative appropriation.

CONSERVATIVE FINANCIAL MANAGEMENT: The commonwealth's financial operations are conservatively managed with periodic revenue forecast updates and a constitutional revenue stabilization fund (RSF). The commonwealth has consistently made prompt adjustments to respond to fiscal uncertainties.

DIVERSE ECONOMY WITH HIGH WEALTH LEVELS: The commonwealth benefits from a diverse economy with relatively low unemployment and high wealth levels. As anticipated, federal government contraction weakened economic growth trends, though Fitch still views Virginia's economic profile as strong.

MODERATE LIABILITY LEVELS: Virginia's debt ratios are in the moderate range, maintained through deliberate policy and above-average amortization. Capital needs for education and transportation improvements remain significant and issuance has accelerated in recent years. While the funded status of Virginia's retirement system declined in recent years, due in part to an underfunding of actuarial contributions to the system, unfunded liabilities as a percentage of personal income remain below average for U.S. states.

RATING SENSITIVITIES

GO-LINKAGE FOR APPROPRIATION BONDS: The rating on the bonds is sensitive to changes in the commonwealth's GO rating, to which it is linked.

CREDIT PROFILE

The 'AA+' rating is based on the pledge of appropriations by the commonwealth, whose GOs are rated 'AAA' by Fitch. Debt service for the bonds being offered derives from direct payments made by the commonwealth, subject to legislative appropriation. The bonds are issued under the 1997 master indenture and various supplemental indentures, which utilize a single payment agreement providing for bond debt service. There is no security interest in the projects financed under the master indenture. Proceeds from the current offering will be used to finance certain capital projects and to refinance certain outstanding VPBA bonds for debt service savings.

COMMONWEALTH'S STRONG CREDIT QUALITY
Virginia's 'AAA' GO rating reflects its solid fiscal resources, conservative approach to financial operations which includes periodic revenue forecast updates, strong fundamental economic profile, and moderate liability levels. Economic and revenue performance underperformed notably in fiscal 2014 compared to earlier forecast expectations, the result of both the continuing timing impact of 2013 federal tax law changes on state tax filers and the commonwealth's exposure to ongoing federal contraction. Virginia addressed the resulting gaps in fiscal 2014 and in the current year through a mix of one-time and recurring measures including fund sweeps, one-time and recurring revenue and expenditure cuts, and use of the RSF. The most significant savings are from a \$216 million reduction in the Medicaid program over the biennium, which the administration attributes largely to benefits from prior year policy changes including an increasing shift to managed care programs.

Earlier this month, the commonwealth reported strong revenue results with general fund receipts through March of \$12 billion up 7.1% year-over-year (yoy), versus the 4.7% growth in the mid-session revenue forecast adopted in February. The mid-session reforecast added \$474 million to the current biennium versus the December 2014 revenue forecast, including \$245 million this year.

The legislature passed a final set of budget amendments they sent to the Governor at the end of February, and the Governor signed the bill into law with no vetoes. Provisions include modest raises for state employees and teachers, partial restoration of local aid cuts, increased pension funding, and an early deposit to Virginia's RSF. Considering the collaborative fiscal management steps taken by the administration and legislature since last year's revenue shortfall, Fitch views positively the smoother enactment process for this year's budget proposal compared to last year's.