September 17, 2012 / 7:58 PM / 5 years ago

TEXT-Fitch rates Vermont's GOs 'Aaa'

Sept 17 - Fitch Ratings assigns an 'AAA' rating to the following State of
Vermont general obligation (GO) bonds:

--$27.3 million GO bonds, 2012 series E (Vermont Citizen Bonds);
--$62.4 million GO bonds, 2012 series F.

The bonds are expected to sell the week of Sept. 24, 2012, the series E bonds
through negotiation and the series F bonds through competitive bid.

In addition, Fitch affirms the 'AAA' rating on the state's outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

General obligations of the State of Vermont secured by the full faith and credit
of the state.

KEY RATING DRIVERS

LOW DEBT LEVELS: Vermont's debt levels are low and are expected to remain so, as
affordability planning is employed. The state's debt profile reflects nearly
exclusive use of GO debt and rapid principal amortization.

CONSERVATIVE FINANCIAL MANAGEMENT: Vermont's revenue stream is diverse and
revenue estimates are updated twice a year. The state takes timely action to
maintain balance and reserves have been maintained at statutory maximum levels
despite periods of declining revenue.

RELATIVELY NARROW ECONOMY: Vermont's economy has diversified but remains narrow
with above-average exposure to the cyclical manufacturing sector. While
statewide educational attainment and unemployment levels compare favorably to
the nation, median resident age levels are well above the national average.

PENSION SYSTEM MODIFICATIONS IMPLEMENTED: The funded ratios for Vermont's
pension systems have declined in recent years, though the state has funded its
actuarially required contributions and has made modifications to benefits and
employee contribution level.

CREDIT PROFILE

Vermont's 'AAA' rating reflects its low debt burden, which is maintained through
adherence to debt affordability guidelines, as well as its conservative
financial management and maintenance of sound reserves. Outstanding debt, which
is nearly entirely GO and matures rapidly, has declined from previously moderate
levels. The state budgets conservatively, and its diverse revenue stream
includes a state property tax for education.

Reserves in each of the state's three major operating funds as of the close of
fiscal 2012 were fully funded and are expected to remain so through the current
fiscal 2013. In addition to the general fund budget stabilization reserve, sized
at 5% of prior year appropriations, the state has set aside additional monies to
offset potential federal funding reductions. Additionally, during the 2012
legislative session, the legislature established the general fund balance
reserve, replacing the former revenue shortfall reserve effective July 1, 2012.
The general fund balance reserve will be funded going forward with general fund
surpluses, up to a 5% of prior year appropriations cap.

The relatively narrow state economy is supported by larger-than-average
employment in tourism, health and educational services, and manufacturing. The
state has a relatively small income base with an older and well-educated
population.

During the recession, Vermont employment dropped 3.5%, well below the national
decline of 5.6%; the state saw small year-over-year growth in 2010 as U.S.
employment continued to fall. In 2011, Vermont experienced a year-over-year
increase of 0.7% compared to the nation's 1.1%, and 2% growth in July 2012
versus 2011 was above the 1.4% U.S. growth rate. Unemployment levels remain well
below those of the nation, at 5% in July compared to 8.3% for the country.
Although manufacturing sector employment, led by an IBM facility near
Burlington, still exceeds the national level on a percentage basis, both
employment and personal income reliance on this sector have dropped in recent
years. Per capita personal income in 2011 totaled $41,832, in line with the
national level.

Heavy rains from Tropical Storm Irene, which passed through Vermont in late
August 2011, resulted in heavy flooding throughout the state. As a result, the
state's office complex and the Vermont State Hospital, both in Waterbury, were
heavily damaged, and more than 500 miles of roads and 30 bridges were impassable
or destroyed. The state estimates cost for the recovery at about $600 million,
with much of that expected to be federally funded. A portion of the state's
share of costs will be financed through reallocated capital funds over the next
few years. All closed bridges and state roads were re-opened by Jan. 1, 2012.

Revenue performance from the state's major tax sources in fiscal years 2009 and
2010 was decidedly negative as a result of the national recession, though the
state took prompt action to maintain balance through expenditure reductions, the
use of carried forward balances, and application of stimulus funds; operating
surpluses in the state's general fund were achieved in each year. Revenue
performance improved markedly in fiscal 2011, with 11.1% growth in personal
income tax revenues and 4.7% growth in sales tax revenues, and the state closed
the fiscal year with a $65 million general fund operating surplus on a $1.2
billion budget.

The fiscal 2012 general fund budget addressed a $176 million budget gap through
utilization of $29 million from the human services caseload reserve, which was
funded with the prior year's surplus, a reduced contribution from the state's
general fund for support of the Education Fund, increased health care provider
taxes, realization of labor savings related to pensions, and agency spending
reductions. Revenue recovery continued during the year, with personal income tax
revenues up 7.9% and sales and use tax revenues up 5%.

The enacted general fund budget for fiscal 2013 addressed a smaller gap,
projected at $50 million. General fund revenues are projected to rise by 5.3%,
with growth of 6.1% in personal income taxes and 3.1% in sales and use taxes.
Base appropriations rise 5.9%. As noted earlier, reserve levels across the
state's three major operating funds are expected to remain at their statutory
maximum levels.

Vermont's tax-supported debt is nearly exclusively GO, and it amortizes rapidly.
The state's debt burden is low. As of June 30, 2012, net tax-supported debt
equaled 2% of 2010 personal income. Debt has declined since the 1990s as a
result of a focus on debt affordability, and while annual issuance levels are
projected to grow, Fitch expects debt ratios to remain low to moderate. Vermont
continues to appropriate required contributions to its pension systems although
funded ratios declined in recent years in part due to asset valuation declines.
The state in recent years has implemented a series of changes to benefits,
employee contributions, and actuarial assumptions.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating
Criteria, this action was additionally informed by information from IHS Global
Insight.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria

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