S&P - Public Finance Criteria (2007). - The Global Clearinghouse

State Credit Enhancement Programscertain requirements at a level one notch off of thestate’s GO rating—on par with the state’s appropriationrating—reflecting the appropriation nature ofthe intercept or withholding mechanism.Accordingly, if the state rating changes so will theprogram rating. Other programs do not meet theserequirements and are rated more than one notch offthe state’s rating. These program ratings will notchange due to a change in the state rating unlessand until they converge with the state’s rating.One category of intercept programs rated on parwith appropriation debt are programs structured toprovide full and timely payment of debt servicedirectly to a paying agent, regardless of theamount of undisbursed state aid due to the entityat the time of intercept. Programs that fall underthis category are:■ California Infrastructure Bank School AidIntercept Program■ Colorado State Aid Intercept Program■ Massachusetts Qualified Bond Act■ Mississippi State Aid Capital ImprovementBond Program■ Missouri Direct Deposit of State Aid Program■ New Jersey Qualified Bonds ProgramAlthough the specific structure of each programvaries, these programs are also characterized bystrong state oversight in addition to the other characteristicsmentioned above.Other intercept or withholding programs providefor payment of debt service only up to an amountequal to remaining undisbursed state aid. However,some of these programs are rated on par withappropriation debt because they require that participant’savailable state aid cover debt service by atleast 2x maximum annual debt service (MADS),reducing the risk that available state aid will beinsufficient to fully cover debt service. In order toachieve an appropriation-equivalent rating,Standard & Poor’s requires that the coverage multiplebe set equal to at least 2x MADS. Standard &Poor’s considers this level of coverage to mitigatethe risk of available state aid being insufficientwhen debt service is due. Programs that qualify forthis rating based on coverage requirements include:■ Georgia State Aid Intercept Program (resolutionenhanced—see program detail)■ Ohio State Aid Intercept Program■ Indiana State Aid Intercept Program (resolutionenhanced—see program detail)■ Kentucky State Aid Intercept Program■ Kentucky State Aid Intercept Program forCommonwealth UniversitiesThose intercept or withholding programs that donot provide for full and timely payment of debtservice or do not have the additional strengths discussedabove are not viewed by Standard & Poor’sas equivalent to state appropriations. Consequentlythese programs are rated lower than the state ratingand their ratings will not necessarily change due to achange in the state’s rating or outlook; however, inthe event a state rating is downgraded to a level at,or below, the program rating, the program ratingmay be lowered to a level at or below the revisedstate rating. Programs in this category include:■ Georgia State Aid Intercept Program■ Indiana State Aid Intercept Program■ New York State Aid Intercept Program■ Pennsylvania State Aid Intercept Program■ Virginia State Aid Intercept ProgramStanding Or Annual Appropriation ProgramsAppropriation programs are dependent on astate’s ability to use its cash reserves to make upany debt service deficiency for a participating localgovernment’s debt service payment. There is a distinctionmade between standing appropriationprograms which are rated on par with the state’sGO rating and annual appropriation programswhich are subject to appropriation risk and arenotched one notch below the state GO ratinglevel. Standing appropriation program ratings arenot subject to appropriation risk and reflect boththe state’s sovereignty and its constitutional obligationto fund education.For both standing and annual appropriation programs,the state’s credit quality is directly linked tothe program’s rating. Consequently, the programrating will move in tandem with its related staterating, keeping the relative rating differentialbetween the program and state rating constant. Theprogram’s rating outlook will always reflect thestate’s outlook.Standing appropriation programs:■ Minnesota State Standing Appropriation Program■ Minnesota County Credit Enhancement Program■ Texas Higher Education Bond Program■ West Virginia Municipal Bond CommissionProgramStates with Annual Appropriation Programs:■ New Jersey Fund for the Support of the FreePublic Schools Program■ South Carolina Education Finance ProgramState Guarantee ProgramsCurrently only four states have constitutionally-createdstate guarantees of eligible school general obligationbonds. In the event of a debt service shortfallof a participating school district, the state must useits general fund reserves or, in the case of Michiganand Oregon, issue general obligation bonds, if necessary,to make up any debt service deficiency inwww.standardandpoors.com87