Bangkok--9 Jan--Standard & Poor's
Standard & Poor's Ratings Services today said that recent cash projections by the state of Arizona (AA/Stable) have raised the prospect of potential cash flow borrowing between February and April 2009. In Standard & Poor's opinion, cash flow borrowing in the amount contemplated by the state treasurer should not on its own affect the issuer credit rating (ICR) on Arizona. The state ICR reflects our expectation that the legislature will make expected necessary and timely budget adjustments to offset further revenue declines and a widening budget gap due to economic weakness. Last year, the legislature solved the $1.4 billion midyear budget gap by mid-April 2008.
The state treasurer estimates that Arizona could need to issue short-term debt for cash needs before March 2009 if revenue and expenditure trends continue. The statutes authorize the state to issue warrants to cover general fund obligations. Although Arizona does not have a history of issuing warrants to cover short-term cash needs through recent recessions, many other states use cash-flow borrowing to match the timing of receipts to disbursements. The Arizona treasurer's projections assume continued weak revenue trends and no prompt action by the legislature to balance the budget. The legislature has a history of adopting the next year's budget by the budget deadline; however, to close a more than $1.2 billion gap in the current fiscal 2009 budget, in our opinion the legislature will need to act before the end of the fiscal year.
Excluding about $130 million in the rainy-day account and $110 million available from an Arizona Department of Transportation (AZDOT) inter-agency loan, the treasurer's office projects up to $50 million of negative cash, or 0.7% of the treasurer's fiscal 2009 revenue forecast, by the end of February 2009. By mid April, with continued revenue declines, the treasurer estimates Arizona could experience up to a $550 million cash shortfall, or 7% of the treasurer's revenue forecast. The state continues to monitor and update its cash forecasts. The legislature meets on Jan. 12, 2009, to review budget solutions for the current fiscal year and to adopt the fiscal 2010 budget. Absent any potential cash infusion from the federal government, Arizona could use the combined $240 million in the rainy-day account and the AZDOT loan to help cover liquidity needs without external borrowing. However, the legislature would need to adjust expenditures promptly, in our opinion, to avoid external short-term borrowing. To prepare for a potential short-term borrowing, Arizona intends to negotiate a bank line of credit, potentially with Bank of America Corp. (A+/Negative/A-1).
Media Contact:
Edward Sweeney, New York (1) 212-438-6643, [email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
David G Hitchcock, New York (1) 212-438-2022
Key Contacts:
Americas Media Relations: (1) 212-438-6667
media_ [email protected]
Americas Customer Service: (1) 212-438-7280
[email protected]