OREANDA-NEWS. Fitch Ratings has affirmed the 'AA+' ratings on the following Commonwealth Transportation Board (CTB, or the board), Commonwealth of Virginia, revenue bonds:

--$205.66 million Northern Virginia Transportation District Program transportation revenue and revenue refunding bonds;
--$12.885 million Oak Grove Connector, City of Chesapeake, transportation revenue and revenue refunding bonds;
--$84.305 million Route 28 Project contract revenue and transportation contract revenue refunding bonds;
--$1.805 billion Transportation capital projects revenue bonds;
--$260.83 million U.S. Route 58 Corridor Development Program transportation revenue and revenue refunding bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the CTB, secured by and payable from general assembly appropriations or CTB allocations from general assembly appropriations.

KEY RATING DRIVERS

COMMONWEALTH APPROPRIATION OBLIGATION: The rating is based on ultimate access to general assembly appropriations, not limited to transportation revenues.

TRANSPORTATION TRUST FUND OFFERS BROAD BACKSTOP: Despite the access to commonwealth appropriations at large, the bonds are expected to be paid from the Priority Transportation Fund (PTF) or project-specific funds (within the broad Transportation Trust Fund [TTF]), backstopped by access to the TTF. The TTF's revenue composition can be altered by the legislature.

'AAA' COMMONWEALTH GO RATING: The commonwealth's general obligation (GO) bonds are rated 'AAA' by Fitch, reflecting Virginia's conservative financial management, diverse economy and moderate debt levels.

RATING SENSITIVITIES
The rating for the bonds is sensitive to changes in the commonwealth's 'AAA' GO rating, to which it is linked.

CREDIT PROFILE
The 'AA+' rating is based on ultimate access to legally available funds in the Commonwealth of Virginia's TTF and other general assembly appropriations, including from the general fund. The capital projects revenue (CPR) bonds are expected to be paid from revenues received in the PTF within the larger TTF appropriations to the CTB by the general assembly. CTB revenue bonds issued for the Route 28, Oak Grove Connector, Northern Virginia Transportation District, and U.S. Route 58 projects also have access to the TTF and, ultimately, any required general assembly appropriations. Fitch rates these project-specific bonds on par with the CPR bonds.

The TTF receives a variety of revenues including various highway-related taxes and a portion of the state sales and use tax. Trust fund revenues totaled $1.325 billion in fiscal year (FY) 2015 (ended June 30, 2015) and are projected to total $1.3881 billion in FY 2016. Revenues have increased since fiscal 2013 following the 2013 enactment of HB 2313, a major transportation funding reform package which envisioned $4 billion in new transportation funding over the first six years, post-implementation. Due mainly to declining gasoline prices, post-HB 2313 revenues have increased at a slower rate than expected and are now projected to be $900 million - $1 billion short of the original forecast through fiscal 2019. However, a gasoline price floor and use of general sales tax transfers built into the legislation largely protects the commonwealth from additional downward momentum.

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. Revenue collections outperformed notably in fiscal 2015 compared to earlier forecast expectations, as the commonwealth rebounded from a significant shortfall in fiscal 2014. Preliminary results indicate a $538.5 million surplus for FY 2015 compared to a $438 million FY 2014 revenue gap that the commonwealth addressed largely with ending fund balances.

Despite the revenue shortfall, the commonwealth left its Revenue Stabilization Fund (RSF) untapped in fiscal 2014 and made its constitutionally required deposit of $243.2 million, bringing its balance to $687.5 million (inclusive of projected interest earnings). The robust surplus in fiscal 2015 will lead to another contribution to the rainy day fund of $605.6 million in FY 2017 per constitutional requirements.

EXECUTIVE BUDGET PROJECTS GROWTH

The executive budget for the next biennium (2017-2018) proposes an 11.3% increase in the commonwealth's operating budget over the current 2015-2016 biennium (inclusive of federal funds), with a 7.8% increase in fiscal 2017 followed by a 3.2% increase in fiscal 2018. General fund spending is up 9.8% over the biennium in the budget proposal. General fund revenues, including transfers, are projected to grow 6.2% over the biennium.

K-12 aid for school districts and Medicaid are two key drivers of the increase, with both seeing substantial increases in the budget plan. The Medicaid growth is partially attributable to the governor's plan to expand under the Affordable Care Act (ACA). As in years past, the legislative leadership expressed doubt that Medicaid expansion would win approval. Fitch anticipates the enacted budget will reflect active legislative engagement and could look materially different than the executive proposal.