OREANDA-NEWS. August 10, 2015. Fitch Ratings has affirmed the 'AA' rating on approximately \\$114 million of State of Minnesota 911 revenue bonds (public safety radio communications system project).

The Rating Outlook is Stable.

SECURITY
The bonds are payable solely from a fee assessed to each customer in the state who uses telephone service, whether wireless, wire line, or voice over internet protocol (VOIP).

KEY RATING DRIVERS

SATISFACTORY COVERAGE LEVELS: Pledged fee revenues provide satisfactory coverage of maximum annual debt service, 3.5x based on fiscal 2014 revenues.

SOLID PLEDGED REVENUE HISTORY: Although the revenue pledge is narrow, telecommunications use is ubiquitous, the fee has been in place for more than 20 years with stable performance, and the fee applies to voice over internet protocol (VOIP).

STATE INVOLVEMENT: The state is involved in project planning and oversight, as well as fee revenue forecasting.

EXPOSURE TO CHANGING TECHNOLOGY: Emerging technologies potentially pose a risk to the legal and practical application of the fee. A relatively short final maturity, with full debt retirement in 2026, somewhat mitigates this risk.

RATING SENSITIVITIES

DEBT SERVICE COVERAGE: The rating is sensitive to the performance of pledged fee revenues and the resulting strength of debt service coverage.

CREDIT PROFILE
The 'AA' rating reflects the satisfactory debt service coverage provided by pledged 911 fee revenues and thorough project planning and oversight by the state. The revenue pledge is narrow; however, receipts have been and are projected to be stable, with notable fluctuations only when the fee amount is increased. Emerging technologies potentially pose a risk to the legal and practical application of the fee, but this risk is offset by consistently solid debt service coverage of more than 3 times (x) in recent years as well as the relatively short life of the bonds (final maturity in 2026).

911 revenue bonds are special, limited obligations issued by the State of Minnesota to fund portions of a six-phase Allied Radio Matrix Emergency Response (ARMER) system. The ARMER system is designed to provide a statewide digital radio network that is interoperable between state, county, and city public safety officers, as well as other government workers.
The bonds are solely secured by the 911 fee revenues and have priority over all other payments from the fees. Metropolitan Council bonds that had a priority claim for the amount necessary to pay annual debt service costs (\\$0.02 of the fiscal 2013 \\$0.80 monthly fee) fully matured in 2013, and no additional Metropolitan Council bonds are authorized or expected. No additional 911 revenue bonds are expected to be issued as well.

The 911 fee is assessed at a monthly rate of \\$0.78 to each customer in the state who uses telephone service, whether wireless, wire-line, or VOIP, and is collected by the telecommunication provider who in turn remits the fee to the state monthly. Since inception the 911 fee revenue has primarily been used to construct and operate the infrastructure necessary for a 911 emergency response system. Fiscal 2016 fee revenues are projected to provide 3.9x coverage of maximum annual debt service, which occurs in the same year. With approval of the Commissioner of Management and Budget, the state may opt to raise the fee up to 10 cents annually to the statutory maximum rate of \\$0.95 by giving 45 days public notice, although given strong coverage fee increases have not been necessary. The state had originally expected to reach the maximum rate \\$0.95 by fiscal 2016 but a scheduled increase may be delayed if not needed, as has been the case in the past.