Capital Debt Affordability Committee Treasury Building Assembly Room 80 Calvert St. Annapolis, MD. Agenda

Transcription

1 Capital Debt Affordability Committee Treasury Building Assembly Room 80 Calvert St. Annapolis, MD Agenda July 19, :00 PM Review of the Size and Condition of Tax Supported Debt: o o o o o o Amount issued in prior five fiscal years Amount outstanding Amount authorized but unissued Debt service projections for the next 10 fiscal years Status of refunding potential Current projections for new issuances General Obligation Bonds Patti Konrad, Director of Debt Management, State Treasurer s Office Capital Leases Kina Johnson-Malcolm, Debt and Lease Administrator, State Treasurer s Office Consolidated Transportation Bonds David Fleming, Director of Finance, Maryland Department of Transportation Garvee Bonds Alison Williams, Senior Director of Treasury & Debt Management, Maryland Transportation Authority Maryland Stadium Authority David Raith, Chief Financial Officer, Maryland Stadium Authority Bay Restoration Bonds Jag Khuman, Program Administrator, Maryland Department of the Environment Rating Agency Reports and Ratings Recalibrations 2010 Second Series Ratings Ratings Recalibrations Moody s 2010 Median Report U.S. States Credit Scorecard Patti Konrad, Director of Debt Management, State Treasurer s Office Work Group Update Patti Konrad, Director of Debt Management, State Treasurer s Office 1

2 Review of the Size and Condition of Tax-Supported Debt

3 General Obligation Bonds

4 An Update of the Condition of Maryland GO Bonds for the 2010 Capital Debt Affordability Committee 1

5 Topics of Discussion Fiscal Year 2010 Year in Review Amount of Bonds Issued in Prior Five Fiscal Years Amount Outstanding and Amount Authorized but Unissued as of June 30, 2010 Current Projections for New Issuances Debt Service Projections for the next 10 Fiscal Years Interest Rates since 1988 Status of Refunding Potential Status of Taxable Debt Use of Variable Rate Debt, Derivatives, GICS 2

6 Fiscal Year 2010 Year in Review First issues of Build America Bonds (BABs): 2009 Second Series C 2009 Third Series B 2010 First Series A First issue of Qualified School Construction Bonds Two retail sales with first priority to Maryland citizens : 2009 Second Series A 2009 Third Series C Refunding First issue using negotiated method for entire sale: 2009 Third Series C Refunding 3

7 Fiscal Year 2010 Year in Review 10 different series totaling $1,938,963,000 $798,080,000 refundings $1,140,883,000 new money Lowest TICS for new money in at least 20 years: nd Series A, B & C 3.07%, maturities rd Series A & B 2.93%, maturities st Series A 2.85%, maturities TICS for refunding bonds: rd Series C 2.61%, maturities st Series B 2.97%, maturities

8 Fiscal Year 2010 Year in Review Debt Management Savings in FY 2010 DATE SERIES ISSUE SIZE ISSUE PV SAVINGS August Second Series C $ 50,000,000 October Third Series B $ 58,200,000 Build America Bonds Build America Bonds $ 4,246,978 $ 2,590,667 December Third Series C $602,765,000 Refunding $24,935,499 December 2009 December Qualified School Construction Bonds 2009 Qualified Zone Academy Bonds $ 50,320,000 $ 5,563,000 March First Series A $400,000,000 QSCB Tax credit bonds QZAB Tax Credit Bonds Build America Bonds $10,551,054 $ 391,754 $11,217,358 March First Series B $195,315,000 Refunding $ 8,591,508 TOTALS $62,524,818 Savings for BABS, QSCBs, QZABs are calculated compared to tax-exempt yields at the time of issue. 5

9 Amount of Bonds Issued in Prior Five Fiscal Years Historical Data on GO Bonds is in Appendix C-1 of the CDAC Report. Beginning in FY 2006 through FY 2010, Maryland has issued $5,059,690,000 General Obligation Bonds consisting of: $3,551,800,000 in tax-exempt bonds $ 508,200,000 in taxable, direct subsidy Build America Bonds $ 65,000,000 in taxable bonds $ 20,490,000 in tax-credit Qualified Zone Academy Bonds (QZAB) $ 863,880,000 in tax-exempt Refunding Bonds $ 50,320,000 in tax-credit Qualified School Construction Bonds (QSCB) 6

10 APPENDIX C-1 Historical Data - General Obligation Debt ($ in thousands) Summary of Authorizations Summary of Debt Activity Summary of Debt Service Fiscal Year Authorized Cancelled New Issuances Authorized but Unissued New Issuances Refunding Redeemed Refunded Adjustment (b) Outstanding at Fiscal Year End Gross Total Repayable Assumed Net (a) 1973 $463,565 $9,152 $193,505 $1,256,159 $193,505 $51,017 $1,018,664 $88,836 ($9,912) $45,766 $35,854 $124, $412,827 $16,058 $162,150 $1,490,778 $162,150 $59,823 $1,120,991 $105,394 ($9,405) $45,684 $36,279 $141, $375,956 $35,267 $353,615 $1,477,852 $353,615 $72,452 $1,402,154 $125,787 ($11,581) $44,674 $33,094 $158, $180,181 $20,465 $391,605 $1,245,963 $391,605 $83,416 $1,710,343 $155,462 ($11,072) $44,186 $33,114 $188, $169,908 $653 $448,200 $967,018 $448,200 $92,633 $2,065,910 $184,751 ($11,963) $43,425 $31,462 $216, $190,896 $4,577 $218,145 $935,192 $218,145 $111,095 $2,172,960 $216,797 ($14,066) $42,459 $28,393 $245, $155,887 $61,422 $115,350 $914,307 $115,350 $134,235 $2,154,075 $244,653 ($14,503) $39,599 $25,096 $269, $205,510 $72,819 $117,310 $929,688 $117,310 $162,255 $2,109,130 $269,054 ($15,052) $37,425 $22,373 $291, $182,418 $16,335 $271,065 $824,706 $271,065 $176,140 $2,204,055 $286,003 ($15,946) $35,841 $19,895 $305, $184,998 $22,391 $188,180 $799,133 $188,180 $184,575 $2,207,660 $311,372 ($16,253) $33,947 $17,694 $329, $190,250 $8,851 $392,230 $588,301 $392,230 $190,000 $2,409,890 $330,491 ($14,062) $28,328 $14,266 $344, $203,150 $24,467 $116,700 $650,284 $116,700 $212,275 $2,314,315 $361,279 ($12,750) $27,209 $14,459 $375, (c) $331,387 $11,187 $138,990 $831,495 $138,990 $222,010 $2,231,295 $380,089 ($11,809) $24,146 $12,337 $392, $219,034 $49,892 $124,585 $876,052 $124,585 $245,805 $2,110,075 $396,768 ($9,204) $20,227 $11,023 $407, $230,950 $7,575 $164,645 $934,782 $164,645 $244,305 $2,030,415 $394,568 ($5,104) $16,441 $11,337 $405, $254,228 $13,601 $304,860 $870,549 $304,860 $244,455 $2,090,820 $389,993 ($4,649) $13,635 $8,986 $398, $294,997 $3,545 $160,000 $1,002,000 $160,000 $245,460 $2,005,360 $393,388 ($4,240) $10,293 $6,053 $399, (c) $328,219 $103,063 $234,227 $992,930 $234,227 $252,681 $1,986,906 $395,118 ($4,260) $8,317 $4,057 $399, $329,200 $2,570 $296,787 $1,022,773 $296,787 $245,256 $2,038,437 $388,400 ($1,349) $6,547 $5,198 $393, $349,979 $1,000 $340,000 $1,031,752 $340,000 $200,238 $2,178,199 $345,897 ($1,353) $5,648 $4,295 $350, $369,995 $2,320 $260,410 $1,139,018 $260,410 $147,740 $176,479 $130,475 $2,279,395 $322,251 ($1,358) $3,156 $1,798 $324, $379,889 $1,417 $380,365 $1,137,125 $380,365 $207,390 $183,106 $180,040 $2,504,004 $323,618 ($654) $2,146 $1,492 $325, $389,960 $1,111 $335,000 $1,190,958 $335,000 $219,936 $2,619,069 $373,485 ($653) $1,357 $704 $374, $412,088 $12,425 $470,000 $1,119,919 $470,000 $229,134 $2,859,935 $382,125 ($652) $1,360 $708 $382, $416,133 $2,114 $410,000 $1,124,656 $410,000 $244,541 $3,025,394 $401,799 ($647) $347 ($300) $401, $442,999 $15,142 $500,000 $1,052,513 $500,000 $254,869 $3,270,525 $417,900 ($642) $64 ($578) $417, $448,745 $5,764 $475,000 $1,020,898 $475,000 $245,297 $3,500,238 $417,646 ($124) $0 ($124) $417, $471,786 $3,659 $125,000 $1,363,620 $125,000 $276,362 $3,348,872 $459,156 $0 $0 $0 $459, $513,250 $3,612 $400,000 $1,473,258 $400,000 $297,966 $3,450,900 $470,868 $0 $0 $0 $470, $731,058 $12,614 $418,098 $1,773,604 $418,098 $109,935 $322,320 $112,435 $3,544,178 $495,217 $0 $0 $0 $495, $756,513 $11,634 $725,000 $1,793,483 $725,000 $376,950 $326,695 $386,940 $3,932,493 $496,870 $0 $0 $0 $496, $663,663 $10,692 $500,000 $1,946,454 $500,000 $330,215 $4,102,278 $536,819 $0 $0 $0 $536, $679,807 $6,730 $784,043 $1,835,488 $784,043 $855,840 $348,180 $882,155 $4,511,826 $553,783 $0 $0 $0 $553, $690,000 $1,004 $750,000 $1,774,484 $750,000 $393,355 $4,868,471 $625,208 $0 $0 $0 $625, $821,126 $4,645 $679,378 $1,911,587 $679,378 $405,695 $5,142,154 $654,055 $0 $0 $0 $654, $935,000 $2,749 $779,986 $2,063,852 $779,986 $428,310 $5,493,830 $692,539 $0 $0 $0 $692, (d) $1,112,000 $1,939 $845,563 $2,328,350 $845,563 $65,800 $464,725 $66,825 $5,873,643 $744,799 $0 $0 $0 $744, (e) $1,214,543 $7,026 $1,140,883 $2,394,984 $1,140,883 $798,080 $482,754 $806,630 $6,523,222 $777,523 $0 $0 $0 $777,523 (a) Authorizations for a fiscal year represent those authorizations effective for that fiscal year; therefore, authorizations for FY 1988 exclude $15 million for the Salisbury Multi-Service Center which authorization is effective 7/1/88. (b) Adjustment to debt service: "repayable" represents debt service on loans the repayment of which is received by the State, from non-state entities, concurrently with, or prior to, debt service payment dates. "Assumed" debt represents payments made by the State for debt service on non-state debt. (c) Includes $100 million authorized in the Special Session of 1985 for the savings and loan crisis; no bonds were issued and the authorization was cancelled in (d) $1,110 million for G.O bonds and $2.0 million for Local Government Infrastructure program (e) $1,140 million for 2010 MCCBL, $70 million 2009 Program Open Space and $4.543 million for QZAB authorization Adjusted Debt Service

11 Amount Outstanding and Amount Authorized but Unissued as of June 30, 2010 The total General Obligation Debt Outstanding as of June 30, 2010 is $6.52 billion. The total amount of debt authorized but unissued as of June 30, 2010 is $2.39 billion. The following slide illustrates the trends in the amounts of GO debt outstanding and the amounts that have been authorized but unissued since

12 General Obligation Bonds Authorized and Outstanding as of June 30, 2010 $9.5 Graph 1 General Obligation Debt Authorized and Outstanding at June 30 $9.0 $8.5 $8.0 $7.5 $7.0 $6.5 $6.0 $5.5 $ in Billions $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Authorized but Unissued Total Outstanding Total Authorized

13 Projected Future Issuances Fiscal Years In the preliminary projections done for CDAC in June 2010, the following issuances of General Obligation Bonds were projected: $970 million $960 million $945 million $940 million $935 million There are multiple authorization levels and patterns that would result in adherence to the affordability benchmarks. The Committee s October 1 Recommendation will reflect updated revenue and personal income projections and authorization levels which adhere to the affordability benchmarks. 10

14 Projected Future Issuances Fiscal Year 2011 Second Series 2010 On July 28, the Board of Public Works will preside over the sale of approximately $489.8* million of General Obligation Bonds. Consists of: Second Series A - $200,000,000* Tax-exempt (Negotiated, Retail Sale) Second Series B - $165,000,000* Tax-exempt (Competitive) Second Series C - $75,000,000* Taxable, direct subsidy Build America bonds (Competitive) Second Series D - $49,760,000* Taxable, direct subsidy Qualified School Construction Bonds ($45,220,000*) and direct subsidy Qualified Zone Academy Bonds ($4,543,000*) First Series 2011 Projected Size $485* million Sale date late February 2011 May include QECBs. BABs may be extended although at a reduced subsidy * preliminary, subject to change 11

15 Debt Service Projections As of June 2010, the following slide shows the debt service by fiscal year. Interest Rate assumptions: Used projected coupons, maturities and yields for the 2010 Second Series 5.0% for the 2011 First Series, 5.25% for the 2011 Second Series, 5.5% for remaining issuances through All tax-exempt debt matures within 15 years. Principal payments begin in year 3. 12

16 Projected Debt Service Fiscal Years $1,400,000 Appendix B-4 Projected General Obligation Debt Service $1,300,000 $1,200,000 $1,100,000 $1,000,000 $ in thousands $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ QZAB/QSCB Sinking Payments $5,246 $5,246 $5,246 $5,246 $5,246 $5,246 $5,246 $4,358 $4,358 $4,358 Debt Service: Expected New Issues $- $37,244 $89,150 $168,506 $272,416 $374,751 $477,045 $580,121 $687,823 $799,739 Debt Service: Bonds Currently Outstanding $835,590 $846,317 $890,032 $827,062 $777,990 $764,251 $720,634 $678,108 $601,956 $549,820 Total Debt Service $840,836 $888,807 $984,428 $1,000,814 $1,055,653 $1,144,248 $1,202,925 $1,262,587 $1,294,138 $1,353,917 Projections as of June

17 Interest Rates Interest rates ( TICS True Interest Cost) and total new money issuance from 1988 through 2010 First Series are in Graph 3 in the CDAC Report. 14

18 Interest Rates Graph 3 Issuance Amounts and TICS of General Obligation Bonds 15 $80 $80 $80 $80 $95 $95 $95 $100 $130 $120 $120 $130 $120 $125 $160 $278 $284 $184 $175 $150 $170 $150 $170 $200 $200 $200 $200 $240 $250 $250 $250 $225 $225 $400 $500 $500 $375 $450 $300 $325 $350 $200 $375 $400 $415 $400 $425 $485 $700 $600 $500 $400 $300 $200 $100 $- 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% ($ millions) st Series nd Series st Series nd Series st Series rd Series th Series st Series nd Series rd Series st Series st Series nd Series rd Series st Series nd Series rd Series st Series nd Series st Series nd Series rd Series st Series nd Series st Series nd Series st Series nd Series st Series st Series nd Series st Series A nd Series A st Series A nd Series st Series st Series A & C nd Series A&B st Series A&B nd Series st Series nd Series st Series nd Series st Series A&C nd Series A,B&C rd Series A&B st Series A Tax-exempt Taxable BAB Tax Exempt TIC Taxable TIC Total Amount

19 Status of Refunding Potential An analysis is done by the State s financial advisor before each bond sale to determine the financial feasibility of a refunding. Benchmarks are 3% net present value savings and an Opportunity Cost Index which is greater than 70%. At this time, no refunding opportunities have been identified for the upcoming nd sale. Advance refunding bonds are invested in escrow accounts until redemption date. Refunding bond rates are low. Escrows are invested in US Treasury SLGs which are also quite low. As a result there is negative arbitrage and savings goals are not met. 16

20 Status of Taxable Debt Taxable debt was issued in 3 series in 2005 and 2006 to finance projects that could not be funded through PAYGO. The 2010 MCCBL includes a number of private loan and private activity projects, which may result in the issuance of taxable debt in the future. 17

21 Use of Variable Rate Debt, Bond Insurance, Derivatives and Guaranteed Investment Contracts (GICS) The State is authorized to issue variable interest rate bonds in an amount no more than 15% of the outstanding general obligation indebtedness. The State has not issued any variable rate debt as of June 30, 2010 and has not executed any derivatives. Because the State is a natural AAA credit, there has been no need for bond insurance. To invest the sinking funds paid on QZAB bonds, the State has entered into Guaranteed Investment Contracts. The State Treasurer s Office is investigating the best method of investing the sinking funds for the 2009 and 2010 QSCB and the 2010 QZAB sinking funds. 18

22 Capital Leases

23 An Update of Tax-Supported Leases for the 2010 Capital Debt Affordability Committee 1

24 Topics of Discussion Tax-Supported Leases Outstanding as of June 30, 2010 Capital Equipment and Energy Lease Activity in Fiscal Year 2010 Projections of Future Equipment and Energy Lease Financing Projections of Future Lottery VLT s Financing Debt Service & Principal Outstanding Projections 2

25 Tax-Supported Lease and COPS Outstanding as of June 30, 2010 The following table summarizes the current tax-supported leases and tax-supported Conditional Purchase Financings as of June 30, 2010 Tax-Supported Lease and Conditional Purchase Financings Outstanding as of June 30, 2010 State Treasurer s Office State Agency Facilities Financed Capital Equipment Leases Various communications, computers and other equipment Principal Amount Outstanding as of June 30, 2010 $47,261,634* State Treasurer s Office Energy Performance Projects 69,295,666* Department of Transportation Headquarters Office Building 26,090,000 MAA Shuttle Buses - BWI 9,000,000 Department of General Services Multi-service office buildings: St. Mary s County 2,020,000 Hilton Street Facility 1,635,000 Prince George s County Justice Center 20,600,113 Maryland Environmental Service Water and Wastewater Facility at Eastern Correctional Institution 665,000 Maryland Transportation Authority State office parking facility 21,325,000 Total Tax Supported Leases and COPS $197,892,413 *Does not include leases for Higher Education and the Stadium Authority 3

26 Capital Equipment and Energy Lease Activity in Fiscal Year 2010 Equipment Provides financing of capital equipment to state agencies. Capital Equipment lease contracts financed $17.4 million during Fiscal year Summary of the Lease Terms for Equipment Financed in Fiscal Year yr leases $5,769,556 5 yr leases 7,588, yr leases 4,000,000 Total $17,357,729 Energy Provides financing for energy conservation projects at state facilities. Lease payments are made from the participating agencies annual utility appropriations using savings achieved through the implementation of energy performance contracts. Energy lease financing totaling $16.1 million closed in Fiscal Year Summary of the Lease Terms for Energy Financed in Fiscal Year yr leases $ 8,313, yr leases 7,112, yr leases 646,950 Total $16,072,950 4

27 Projections of Future Equipment and Energy Lease Financing Types of Financing Period* CDAC projections as of June 2010* Equipment Leases (1) Fiscal Years $15 million per year Energy Leases (2) Fiscal Year 2011 $80 million (1) Based on agency survey received April, 2010 and discussion with DBM. (2) DGS has not projected energy leases beyond Fiscal Year Energy lease projections currently do not include lease financings for Higher Education and some Transportation facilities. * Preliminary, subject to change. 5

28 Projections of Lottery VLT s financing The following VLT Financings are incorporated in June 2010 Affordability Analysis. Amount of Closing Estimated First Location Financing* Date* Lease Payment Date* Penn National $29.0 1/15/2011 7/1/2011 Ocean Downs $22.0 4/15/2011 7/1/2011 Arundel Mills $68.0 6/15/2011 1/1/2012 Arundel Mills $66.3 7/15/2012 1/1/2013 Not included are financings for VLTs at Baltimore City ($110 million) and Rocky Gap ($45 million). The Video Lottery Facility Location Commission plans to rebid the licenses for these facilities in calendar year Because of uncertainty regarding the opening of Baltimore City and Rocky Gap, they were not included in the June Affordability projection. * Preliminary, subject to change. 6

29 Capital VLT s, Energy, and Equipment Lease Principal Outstanding Projections Fiscal Years Projected Capital Lease Principal Outstanding as of June 2010 Preliminary, Subject to Change 400, , ,000 $ in millions 250, , , ,000 50, VLT's 0 119, , , ,826 75,653 32,249 16, Energy 64,401 69, , , , , ,920 92,362 81,579 71,478 60,930 Equipment 65,723 47,262 43,690 42,202 43,569 43,043 44,673 44,649 44,649 44,649 44,649 Total Lease Principal Outstanding 130, , , , , , , , , , ,579 FY Principal Outstanding 7

30 Capital VLT s, Energy, and Equipment Lease Debt Service Projections Fiscal Years $90,000 Projected Capital Lease Debt Service as of June 2010 Preliminary, Subject to Change $80,000 $70,000 $60,000 $ in millions $50,000 $40,000 $30,000 $20,000 $10,000 $ VLT's $- $- $9,592 $31,741 $38,277 $38,492 $46,879 $25,375 $8,387 $- $- Energy $4,180 $4,556 $11,250 $16,524 $16,524 $16,524 $16,524 $16,205 $14,901 $13,758 $13,758 Equipment $36,466 $32,801 $24,961 $21,964 $17,373 $16,865 $14,764 $15,815 $15,815 $15,815 $15,815 Total Lease D.S. $40,646 $37,357 $45,804 $70,230 $72,175 $71,882 $78,167 $57,395 $39,102 $29,573 $29,573 FY Debt Service 8

31 Consolidated Transportation Bonds

32 Maryland Department of Transportation Presented by David L. Fleming Director, Office of Finance July 19, 2010

33 Maryland Department of Transportation Consolidated Transportation Bonds Structure: Fixed rate Interest only first 2 years Increasing principal payments over 15 year life, with serial maturities Additional Bonds Test: Pledged taxes at least 2.0x maximum annual debt service Net revenue at least 2.0x maximum annual debt service -1-

34 Maryland Department of Transportation Consolidated Transportation Bonds Management Policy: Pledged Taxes at least 2.5x maximum annual Debt Service Net Revenue at least 2.5x maximum annual Debt Service Fiscal Year 2009 Actual: Pledged taxes coverage 6.3x Net revenue coverage 3.1x Fiscal Year 2010 Estimated : (based on March 2010 Financial Plan) Pledged taxes coverage 5.9x Net revenue coverage 2.9x -2-

35 Maryland Department of Transportation Consolidated Transportation Bonds Amount issued in prior 5 fiscal years: $957 million new construction Amount outstanding: FY10 - $1.645 billion Legislative debt ceiling $2.6 billion Amount authorized but unissued: FY10 - $1,830 million authorized FY10 - $185 million unissued Status of refunding potential Analysis is periodically completed by the department s financial advisor No refunding potential at this time -3-

36 Maryland Department of Transportation Consolidated Transportation Bonds Current projections for new issuances ($ in millions) Debt Debt Outstanding Outstanding at Beginning New at End Fiscal Year of Year Issues Redeemed of Year 2011E $1,645 $215 $83 $1, E $1,777 $380 $103 $2, E $2,054 $300 $109 $2, E $2,245 $190 $135 $2, E $2,300 $215 $159 $2, E $2,356 $315 $181 $2, E $2,490 $313 $215 $2, E $2,588 $220 $223 $2, E $2,585 $205 $203 $2, E $2,587 $200 $190 $2,597 (E = Estimated based on March 2010 Financial Plan) -4-

37 Maryland Department of Transportation Consolidated Transportation Bonds Debt service projections for the next 10 years 400 ($ in millions) DS Projected New Issues DS Current Outstanding Total Debt Service

38 Maryland Department of Transportation Consolidated Transportation Bonds Rating Agency Updates Standard & Poor s AAA Moody s Aa1 Fitch AA+ -6-

39 GARVEE Bonds

40 CDAC July 2010 MARYLAND TRANSPORATION AUTHORITY Grant Anticipation Revenue Vehicles GARVEE Bonds Purpose Grant Anticipation Revenue Vehicles ( GARVEE ) Bonds are being used as part of the funding plan for the Intercounty Connector ( ICC ) project, in addition to Maryland Transportation Authority funds, revenue bonds and a federal loan under the Transportation Infrastructure Finance and Innovation Act (TIFIA) Program, Maryland Transportation Trust Funds, State General Funds, State General Obligation Bonds, and other sources. The use of GARVEEs for the ICC is intended to allow the project to be completed sooner than otherwise would be possible and with less reliance on the State s available funds in the short term. Limitations The Statute limits the total amount that can be issued for GARVEEs at $750 million, with a maximum maturity of 12 years. Under State law, the proceeds can only be used for the ICC. Legislation enacted by the 2005 General Assembly specified that GARVEE bonds should be considered tax-supported debt in the Capital Debt Affordability analysis. Security GARVEEs are bonds for which debt service is paid using a portion of federal transportation funds received by the State. In addition, there is a subordinate pledge of certain Maryland State Transportation Trust Fund (TTF) tax sources. There are also debt service reserve funds. Current Status GARVEE bonds issued: $750,000,000 Debt Outstanding as of June 30, 2010: $651,795,000 Ratings: Standard & Poor s AAA Moody s Investor s Service Aa1 Fitch Ratings AA Annual Debt Service Payments: Approximately $87.5 million per year for FY and $51.4 million for FY 2020 Final Maturity: March 1, 2020 Pledged Revenue: $432.8 million per year in federal aid Issuances In May 2007, the Maryland Transportation Authority sold $325 million of GARVEE bonds at a true interest cost of 3.99%. In December 2008, the Authority sold the remaining $425 million of GARVEE bonds at a true interest cost of 4.31%. Use of Variable Rate debt, Bond Insurance. Derivatives and Guaranteed Investment Contracts The GARVEE bonds are fixed rate bonds, and were issued without bond insurance due to the TTF back up pledge and the availability of debt service reserve funds. The Authority has not used derivatives or guaranteed investment contracts.

41 MARYLAND TRANSPORTATION AUTHORITY FY GARVEE Bonds Annual Debt Service FY Total Debt 2007 Series 2008 Series Total Outstanding 2008 $ 36,090,798 - $ 36,090, $ 300,655, ,091,044 4,272,911 40,363, ,365, ,091,231 51,366,888 87,458, ,795, ,090,231 51,365,088 87,455, ,915, ,090,763 51,365,838 87,456, ,355, ,089,325 51,362,088 87,451, ,035, ,090,825 51,366,788 87,457, ,775, ,091,950 51,362,038 87,453, ,440, ,087,200 51,363,288 87,450, ,780, ,089,650 51,361,963 87,451, ,590, ,091,400 51,365,275 87,456, ,680, ,089,400 51,362,150 87,451, ,865, ,364,838 51,364, CDAC July 19, 2010

42 Maryland Stadium Authority

43 Maryland Stadium Authority Briefing Capital Debt Affordability Committee July 19,

44 Debt Issued over the past five years Fiscal Amount Year 2006 $0 Purpose 2007 $105,100,000 To refund the 1994 Series for the Baltimore Convention Center and the 1996 Series for the Football Stadium and reissue with variable rate debt, the Series 2006 Baltimore Convention Center and the Series 2007 Football Stadium bonds, in accordance with a forward interest rate swap agreement 2008 $3,500,000 Equipment Lease for new A\V at Oriole Park 2009 $ $23,510,558 Renovations at Camden Yards Complex 2

45 Current Debt Outstanding and Annual Debt Service Fiscal Year Amount Outstanding Debt Service 2009 $256,012,796 $31,935, $261,939,854 $32,053, $243,870,794 $33,247, $223,427,936 $34,870, $201,671,158 $34,866, $170,831,991 $42,514, $148,356,774 $32,683, $129,446,647 $27,720, $110,762,532 $26,381, $90,785,129 $26,421, $69,863,972 $26,079, $47,482,418 $26,096,709 Chart excludes SALP loan 3

46 Tax-Supported Debt Outstanding and Annual Debt Service Fiscal Year Amount Outstanding Debt Service 2009 $256,012,796 $31,935, $251,939,854 $32,053, $233,870,794 $32,953, $214,182,936 $33,831, $193,196,158 $33,835, $170,831,991 $33,914, $148,356,774 $32,683, $129,446,647 $27,720, $110,762,532 $26,381, $90,785,129 $26,421, $69,863,972 $26,079, $47,482,418 $26,096,709 Chart excludes SALP loan 4

47 Revenue Bond Debt Outstanding and Annual Debt Service Fiscal Year Amount Outstanding Debt Service 2009 $0 $ $10,000,000 $ $10,000,000 $294, $9,245,000 $1,038, $8,475,000 $1,030, $0 $8,599, $0 $ $0 $ $0 $ $0 $ $0 $ $0 $0 5

48 New Debt Issuances Current projections for new bond issuances Unwind the interest rate swap agreement with AIG Financial Call the current 1998A taxable variable rate debt and issue new fixed rate debt Call the current 1999 tax-exempt variable rate debt and issue new fixed rate debt Termination fee projected at $18.9 million New bonds structure could net $8.8 million in premium 6

49 Current Interest Rate Swaps Series/ Outstanding Amount Swap Counterparty Liquidity Provider Remarketing Agent Series 1998A $12,890,000 AIG Financial Products Corp. Dexia JP Morgan Series 1999 $82,530,000 AIG Financial Products Corp. Dexia JP Morgan Series 2006 $21,395,000 Series 2007 $66,260,000 Barclay s Bank of New York Goldman Sachs & Co. Barclay s Dexia Goldman Sachs & Co. 7

50 8 Interest Rate Swaps Status Ambac rating downgrade in the fall of 2008 triggered termination event Replaced Ambac with Barclay s in December 2008 Dexia is experiencing financial issues Nearly $100 million tendered and eventually remarketed successfully Working with Public Financial Management to determine if there is interest in replacing Dexia Working with Public Financial Management on replacing AIG as swap counterparty on 1998A and 1999 series and moving to a more conventional swap or the unwind the swap

51 Refunding Opportunities Reviewing the refunding of Series 1995 with an outstanding amount of $7,605,000 Current projections show an estimate of $90,000 annual savings 9

52 Fixed Rate Debt Ratings Series S&P Moody s Fitch 1995 AA Aa AA 2002 AA+ Aa2 AA 2002 AA+ Aa2 AA 2003 AA+ Aa2 AA 2004 AA+ Aa2 AA 10

53 Variable Rate Debt Ratings Series S&P Moody s Fitch 1998A Short Term A-1+c VMIG 1 F A Long Term AA- Aa2 AA 1999 Short Term A-1+c VMIG 1 F Long Term AA- Aa2 AA 2006 Short Term A-1+ VMIG 1 F Long Term AA+ Aa2 AA 2007 Short Term A-1+ VMIG 1 F Long Term AA+ Aa2 AA 11

54 Open Issues Best option on the variable rate 1998A and 1999 bonds to either replace swap counterparty or to refund and issue new fixed rate debt 12

55 Bay Restoration Bonds

56 Bay Restoration Fund Revenue Bonds Purpose Proceeds of these bonds will fund grants to waste water treatment plants (WWTP) for upgrades to remove nutrients thereby reducing nitrogen loading to the Chesapeake Bay and its tributaries. Security Legislation enacted by the 2004 General Assembly (Chapter 428, Laws of Maryland 2004) established a Bay restoration fee which will be deposited in the Bay Restoration Fund and administered by the Water Quality Financing Administration of the Maryland Department of the Environment. Fee revenue from WWTP users will support the debt service on these bonds. Current Status: Debt Outstanding as of June 30, 2010 $44,185,000 Ratings Moody s: Aa2 - Series 2008 Use of variable rate debt, bond insurance. derivatives and Guaranteed Investment Contracts (GIC) The indenture permits the issuance of variable rate debt. The structure for the Series 2008 issue was fixed rate only, with no debt service reserve that may have required GICs and no bond insurance. Projections of Future Issuances The timing and amount of bonds issued will depend on the fee revenue attained and the need for funding as upgrades of WWTP proceed. For purposes of the CDAC calculations, it is assumed that the bonds will be limited to 15-year maturities with a total issuance of $530 million. Future estimated issuance is projected (in millions) at $180, $205 and $95 in fiscal years , respectively.

57 Bay Restoration Fund - Revenue Bonds Updated 6/22/10 Fiscal Year Ending Annual Bond Issuance (15 yr term), Interest Rate = 5.50% $ 50,000,000 $ - $ - $ - $ 180,000,000 $ 205,000,000 $ 95,000,000 $ - Cumulative Bond Issuance $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 50,000,000 $ 230,000,000 $ 435,000,000 $ 530,000,000 $ 530,000,000 Total Outstanding Bond Debt $ 50,000,000 $ 46,825,000 $ 44,185,000 $ 41,560,000 $ 218,820,000 $ 412,962,000 $ 487,399,000 $ 461,493,000 Annual Bond Debt Service Payment $ - $ 4,655,000 $ 4,710,000 $ 4,616,000 $ 4,614,000 $ 22,550,000 $ 42,970,000 $ 52,436,000 Fiscal Year Ending Annual Bond Issuance (15 yr term), Interest Rate = 5.50% $ - $ - $ - $ - $ - $ - $ - Cumulative Bond Issuance $ 530,000,000 $ 530,000,000 $ 530,000,000 $ 530,000,000 $ 530,000,000 $ 530,000,000 $ 530,000,000 Total Outstanding Bond Debt $ 434,201,000 $ 405,474,000 $ 375,224,000 $ 343,371,000 $ 309,707,000 $ 274,217,000 $ 236,801,000 Annual Bond Debt Service Payment $ 52,434,000 $ 52,405,000 $ 52,364,000 $ 52,322,000 $ 52,434,000 $ 52,435,000 $ 52,432,000 Millions $700 $600 $500 $400 $300 $200 $100 $- $50 $50 $50 $50 $47 $50 $44 $50 $42 $230 $180 Bay Restoration Fund $530 $530 $530 $530 $530 $530 $530 $530 $530 $487 $435 $461 $413 $434 $405 $375 $343 $310 $274 $237 $219 $205 $95 $- $- $- $- $- $- $- $ FY Annual Bond Issuance Cumulative Bond Issuance Outstanding Debt Contact: Jag Khuman, Director Maryland Water Quality Financing Administration Maryland Department of the Environment

58 Water Quality Financing Administration - Bay Restoration Fund Revenue Bonds (Dollars in Millions) State New Bond Debt Outstanding Annual Debt Projected Annual Fiscal Year Issues at 6/30/yr Service for FY Revenue for FY 2008 $ $ $ - $ $ - $ $ $ $ - $ $ $ $ - $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ - $ $ $ - $ - $ $ Updated 6/22/2010

59 Rating Agency Reports and Ratings Recalibration

60 2010 Second Series Ratings

61 2010 Second Series Ratings AAA, stable outlook from all 3 rating agencies Ratings reports are available on the Treasurer s website. Click the link on the right side of the home page. 8 states have a AAA rating. MD, DE, VA, NC, GA, MO, UT, IA

62 Ratings Recalibration

63 Ratings Recalibrations Research showed that government bonds (especially general obligation bonds) had a much lower incidence of default and a higher rate of recovery in the event of a default than similarly rated corporate bonds. Prior Scale evaluated municipal credit quality based on distance to distress. In the spring of 2010, Moody s and Fitch recalibrated their ratings. All ratings are now on a global rating scale that reflects default probability. The scales are standardized so that all borrowers are assessed on the same criteria, and a rating means the same thing regardless of whether the issuer is a city, a sovereign nation, or a retail chain. S&P has reported that they have been recalibrating ratings over the last few years. Attached are two maps with each State s ratings one is prior to the recalibration and the other is post recalibration. 1

64 State General Obligation Ratings - Before Recalibration Montana Aa2/AA/AA North Dakota (Aa2)/(AA+) Maine Aa3/ AA/AA _ Idaho (Aa2)/(AA)/AA "' Utah Aaa/AAA/AAA Colorado Aa2"I(AA) South Dakota NAF/(AA)/AA-"' NH West Virginia a2/aa/aa Aa3/AA/AA- MA Aa2/AA/AA I Aa3/AA/AA- - ACT Aa3/AA/AA NJ Aa3/AA/AAy** DE Aaa/AAA AA MD Aaa/AAA1 AAA DC Al/A+/A+ Virginia Aaa/AAAIAAA Arkansas Aa2/AA Tennessee Aa1/AA+/AA± North Carolina Aaa/AAA/AAA Alaska Aa2/AA+/ AA Texas Aal/AA+IAA+ Alabama Aa2/ AA/AA Order of Ratings: Moody 's/s&p/fitch Aaa/AAA One Aaa/AAA Aa/AA/AA- Less than Aa3/AA- () Indicates issuer credit rating which is equivalent to a General Obligation rating 1 As of April 4, 2010.

65 State General Obligation Ratings - After Recalibration Washington AaI/AA+/AA+ Oregon Aal/AA/AA+ Alaska Aa1/AA+/ AA+ Nevada Aal/AA+/AA+ Idaho (Aa1)/(AA)1AA*** Utah Aaa/AAA/AAA Montana Aal/AA/AA+ Wyoming (AA+) (S&P) Colorado Aa1**/(AA) New Mexico Aaa/AA+ North Dakota (Aal)/(AA+) South Dakota NAFI(AA)/AA*** Nebraska (AA+) (S&P) Kansas (Aal)/(AA+)IAA*** Texas Aaa/AA+/AAA Oklahoma a2/aa+iaa+ Minnesota Aal/ AAA/AAN, Iowa Aaa)/(AAA)/(AAA) Missouri Aaa/ AAA/AAA Arkansas Aa1/AA Louisiana 2/AA-/ Wisconsin Aa2/ AA/AA Michigan Aa2/ AA4AA Indiana (Aaa)/ ()/ Kentucky iaa1)i(aa-)/aa Tennessee Aaa/AA+/A Alabama Aa1/ AA/AA+ West Virginia Aa2/AA/AA Ohio Aa1/ AA+/AA+, Pennsylvania Aal/AAIAA+ Vermont Aaa/AA+/AAA E ew Yor Aa2l Maine Aa2/ AA/AA+ Georgia ^., South Carolina Aaa/ Aaa/AA+/AAA AAA/AAA Mississippi Puerto Rico Aa2/AA/AA+ / A3/ BBB- (M/F) NH al/aa/aa+ MA Aal/AA/AA+ I Aa2/AA/AA CT Aa2/AA/AA+ NJ Aa2/AA/AA DE Aaa/AAA/AAA MD Aaa/AAA/AAA DC Al ginia AA- ^ Virginia Gz Aaa/AAA/AAA North Carolina Aaa/AAA/AAA Hawaii Aal/AA/AA+ look. A1IA/A- Aaa/AAA One Aaa/AAA Aa/AA/AA- Less than Aa3/AA- i Florida Aa1/AAA/AAA Order of Ratings : Moody's/S&P/Fitch () Indicates issuer credit rating which is equivalent to a General Obligation rating? As of April 19,

66 Moody s 2010 Median Report

67 U.S. PUI IC FINANCE SPECIAL COMMENT 2010 State Debt Medians Report Based on 2009 Data State Debt Increase in 2009 Related to a Variety of Factors State net tax-supported debt increased by 10.3% in 2009 to $460 billion from $417 billion in 2008 (see Figure 1), a substantial increase from the 2008 growth rate of 4.7%. The accelerated growth in net tax -supported debt resulted from a number of factors, including but not limited to:»» Pent up demand for municipal bonds in 2009 after most states halted and/or significantly reduced debt issuance during the market disruption experienced in the fall of 2008; Introduction of Build America Bond and Qualified School Construction Bonds through provisions of the American Recovery and Reinvestment Act of 2009, which created unprecedented incentives for municipal debt issuers; The need for budget relief as a result of the national recession; and A low interest rate environment. Median net tax-supported debt per capita increased by 8.1% to $936 from $865, while net tax-supported debt as a percentage of personal income remained steady at 2.5% was a notable year for debt issuance with a variety of unique factors contributing to the significant increase in debt including the aforementioned stabilization of the bond market following the fall 2008 market disruption, and the passage of the American Recovery and Reinvestment Act of 2009 (ARRA). With ARRA, the federal government helped to stabilize the municipal bond markets by introducing two new debt structures that substantially lowered the debt service costs for municipal issuers, Build America Bonds (BABs) and Qualified School Construction Bonds (QSCBs). Most BABs provide state or local governmental issuers with a federal subsidy equal to 35% of the total interest payable on the bonds substantially lowering debt service costs for issuers. QSCBs issued in 2009 provided a federal subsidy to investors through federal tax credits in an amount equal to 35% of the total coupon interest payable by the issuer. QSCBs can only be utilized for financing school capital construction costs. Most states have taken advantage of the BABs while only two, West Virginia and Colorado issued QSCBs in 2009.

68 L (f ^^^.'tci;^td U.S PUBLIC FINANCE The continuation of a low interest rate environment coupled with the effects of the recession on state finances also contributed to the growth in state debt. As we normally would see in a low interest rate environment, state governments refunded existing debt to achieve interest rate savings. However, during 2009, a significant portion of savings achieved from refundings was used to plug budget gaps. As states struggled to balance rising expenditure pressures with severely declining revenues, debt restructuring - in the form of issuing bonds to defer debt service -- became a common solution to address budgetary gaps. In addition to restructuring debt, some states simply issued long-term debt to fund operations. Most notably, the State of Connecticut closed its fiscal 2009 operating budget gap with use of deficit bonds in the amount of $947 million. The low interest rate environment also prompted states like New York to continue to refinance auction rate securities and variable rate demand bonds for which interest rates had risen during the credit crisis. State debt issuance in 2010 (which will be the basis of our 2011 debt medians analysis) will likely increase as states continue to generate economic activity while taking advantage of low interest rates and the lower overall net cost of funds provided by the issuance of BABs and QSCBs. States will continue to look to long-term financing to alleviate budget pressure, particularly with the exhaustion of ARRA funding in fiscal Debt growth may also be impacted by state governments providing support of debt for lower levels of government in the absence of readily available bond insurance. This type of support may or may not have a direct impact on a state ' s debt burden depending on how the support is structured. FIGURE 1 Total Net Tax-Supported Debt of the 50 States ($B) $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $ , 199$ , 20p OOA ' o' Every year, Moody's prepares a special comment that presents an analysis of state debt medians. The 2010 Debt Medians report examines the condition of net state tax-supported debt as of calendar year-end As in prior years, the data presented (Figures 1, 2, 3 and Table 6) reflect the historical trend up to the immediately preceding year's state debt issuance while the data point label corresponds to the year in which the report is produced (i.e. The data labeled 2010 reflect debt as of calendar year-end 2009). Two measures of state debt burden - debt per capita and debt as a percentage of personal income - are commonly used by analysts to compare the debt burden of one state to another. Debt burden is one of many factors ;A"ct 7z.1-Snpporrcd Debt dcfi?tecl a drbr cer1'r d by 1tl7tF air ral: -ig rc ' ZUI!IC^r (^01(Lr! CI CI1PTt{'Z r^ br rs.+rdfor 1200 o^^erntions..4l def%t 10 7i:'j71 i'^r ple!`rci I^r Yi US1P re_ wl rcei are,u 11)117: i nruidered 10 be net tax- ' IP0rtedaCit. SPACIAL COCA (S 5' 5 1 DEBT MED(AN511P011

69 U S. PUBLIC FINANCE that Moody's uses to determine state credit quality. In considering debt burden, the focus is largely on net tax-supported debt, which Moody's characterizes as debt secured by state resources. Moody's also examines gross debt, which includes contingent debt liabilities that may not have direct tax support, but represent commitments to make debt service payments under certain conditions (e.g. state guarantees, bonds backed by state moral obligation pledges). This year, we are also adding a table that reflects net tax-supported debt as a percent of gross domestic product, by state. This ratio is useful when comparing U.S. state credits to sovereign and subsovereign credits as debt-to-gdp is an important input into the ratings assigned to these sectors. This ratio is usually higher for governments outside of the U.S. because debt issuance outside of the U. S. is more centralized. Even so, comparison of this metric is an important part of our continued benchmarking against other sectors now that U.S. state credits are rated on the same scale as sovereign and subsovereign credits. Growth of Net Tax-Supported Debt Doubles State total net tax-supported debt increased by 10.3% in 2009 to $460 billion, more than double the rate of increase recorded in the previous year. The accelerated rate of growth is reflective of the contrasting market conditions between 2009 and Debt issuance in 2008 was muted by a combination of factors, starting with the downgrade of collateralized mortgage obligations brought on by the softening real estate market and ultimately the lack of liquidity as some of the world's largest investment banks protected their balance sheets and credit tightened. In 2009, bond markets began to stabilize and bonds that were not issued as originally planned in 2008 were brought to market in The historically low interest rate environment encouraged states to borrow for economic stimulus. In the beginning of the year, states with auction rate securities refinanced those bonds to avoid the high interest costs associated with them. Later, states issued large amounts of fixed rate bonds to retire variable rate debt as liquidity agreements were not available in all situations and the expense of available liquidity outweighed the benefit of short-term interest rates. During 2009, states benefited from a lower cost of funds due to the debt structures introduced by ARRA which expanded the investor base of municipal issuers from the traditional holders of tax-exempt bonds to purchasers of taxable bonds. Of the states that had the largest increases in net tax-supported debt, Utah experienced growth of 118% due to the state undertaking its single largest debt issuance ever of $1 billion in general obligation bonds to finance highway projects. A portion of the bonds were issued as Build America Bonds. It is important to note that, even with the near-term increase (some of the new debt amortizes over five years), Utah's overall net tax-supported debt is still low relative to other states, ranking 31st out of 50 in total net tax-supported debt for One of the largest bond issues in 2009, the State of California's $3.2 billion of Economic Recovery Bonds issued in October 2009, was secured by a double barreled pledge of sales tax revenue and general obligation. The Economic Recovery Bonds were issued to provide budgetary relief for the state which continued to endure a deep recession. In total, California grew its debt burden by 31 % in 2009 over the prior year. The State of Alaska also experienced a large 59% increase in debt. The state increased its issuance of general obligation debt by $165 million (the first new money general obligation bond issued by the state since 2003), as well as state lease obligations. Similar to Utah, Alaska has a lower debt burden relative to other states and, even with the 59% increase in total taxsupported debt, the state ranks 40th out of 50 in total net tax-supported debt for 2009.

70 U.S. PUBLIC FINANCE Median net tax-supported debt per capita at calendar year-end 2009 increased by 8.1% to $936 (see Figure 2). The large percentage growth is in line with the growth in total net tax-supported debt. Unlike last year, when most states experienced a decline in total debt burden due to postponement of debt issuance coupled with scheduled amortization of outstanding debt, in 2009 most states experienced robust growth in debt burden. Even states that have historically limited debt issuance embarked on substantial capital programs in Colorado issued roughly $330 million to provide funding for K-12 school construction and higher education capital support as well as other statewide capital needs. Some states were notable in 2009 for having reduced debt burden. The State of Arkansas issued just $15.2 million in debt during The small debt issuance in conjunction with scheduled amortization of outstanding debt resulted in a 15% decline in the state's net tax-supported debt. The State of Nebraska, which historically has one of the lowest debt burdens of all states due to a constitutional limitation on issuance of general obligation debt, issued just under $15 million of certificates of participation in 2009 and experienced a decline of 10% in net tax-supported debt. FIGURE 2 Median Net Tax-Supported Debt Per Capita for 50 States $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 -- le 1^P e 1^^N 1^^y 1^^^ 1^^1 ^^9$ 1^^p ti^oo ti^o1 ti^o ^^^ ^^^11 ti^oy Median Net Tay -4,1d Debt, as a Percent of Personal Income Remains Unchanged Median net tax-supported debt, as a percent of personal income, remained steady at 2.5%, even with the overall increase in net tax-supported debt (Figure 3). Since 1995, median net tax-supported debt has averaged 2.3%, never exhibiting growth or declines of more than two tenths of a percentage point year-over-year. ^.. FCM[e.4xv.` O'1 _'^ir ns.. xcsl..h.:m;c,;^rt'.,-c.,y.c., TS :...:,:a LJSt eo,..:. A`ry.._k -., t*n 'L DEFT Mf'D4AN`

71 S FUBlIC FINANCE. FIGURE 3 Median Net Tax-Supported Debt as Percent of Personal Income for 50 States 3.0% 2,5% 2.0% 15% 1.0% 0.s% 0.0%, FIGURE 4 Personal Income Year-Over-Year % Change 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% State Debt Outlook: Debt Issuance Expected to Continue Growth Trend State debt issuance in 2010 is expected to increase, however the rate of growth is not expected to mirror the growth experienced in While there are signs that the national recession has abated, most states continue to experience budgetary strain which will continue to impact debt issuance. Generally speaking, states will continue to use long-term debt to finance capital needs as the ability to cash fund projects amid weak revenue growth and following dramatic budget reductions is no longer an option and states will continue to view long-term financing as a way of improving economic activity. The Build America Bonds and Qualified School Construction Bonds programs will continue to have a positive impact on debt issuance for the 2010 calendar year, as states continue to utilize these popular structures to lower overall cost of capital, thus providing a greater incentive to use long-term financing to fund capital projects as a means to invigorate the economy. Some states have exhausted the debt issuing capacity permitted by their debt policies. The majority of states have a debt capacity tool in place to monitor leverage. These policies typically measure dept capacity in terms of debt service as a percent of general fund revenues. As state revenues have declined, debt capacity has also declined. In North Carolina, for example, according to the state's 2010 Debt Affordability Study, the state has reached its maximum target of limiting authorized debt service to 4% of general fund revenues. As a result, the current budget proposal for the state does not include any net tax-supported debt issuance for fiscal year Other states, such as Minnesota, are examining debt policies to see if they still make sense in the current economic and fiscal environment. I, (<EPORI

72 . U. PUBLIC NANCE TABLE I Net Tax-Supported Debt TABLE 2 Net Tax-Supported Debt,, PER CAPITA RATING ASA /, OF 2009 PERSONAL INCOME 1 Hawaii 9.9% 1 Connecticut S4, 859 Aa2 2 Massachusetts 9.2% 2 Massachusetts $4, 06 Aal 3 Connecticut 8.7% 3 Hawaii S3, 996 Aal 4 New lersev 7.2% 4 New lersev S3 669 Aa2 5 New York 6.5% 5 New York $3.135 Aa2 z Delaware 6.2% Delaware $ Aaa 7 California 5.6% 7 California $2 362 Al 8 Kentucky 5.4% 8 Washington $ 2, 226 Aal 9 Washington 5.3% 9 Rhode Island $2, 127 Aa2 10 Oregon 5.2% 10 Oregon $ 1, 859 Aal 11 Rhode Island 5.2% 11 Illinois $1, 856 Aa3 12 Mississippi 5.0% 12 Wisconsin $1720 Aa2 13 Wisconsin 4.6% 13 Kentucky $ 1,685 Aa1* 14 Illinois 4.4% 14 Maryland 51 RI1R Aaa 15 New Mexico 4.4% 15 Mississippi $ 1,478 Aa2 16 Louisiana 3.6% 16 New Mexico $ 1, 398 Aaa 17 West Virginia 3.5% 17 Alaska $ 1,345 Aal MaMand 34% 18 Louisiana $ 1,271 Aa2 Georgia 3.3% 19 Kansas $1140 Aa1* 20 Alaska 3.2% 20 Florida $1, 123 Aal Utah 32% CI 22 Georgia $1120 Aaa 22 Kansas 3.0% WestVlreinia Aa2 23 Florida 2.9% S1.037 Aal 24 South Carolina 2.9% Utah $957 Aaa 25 Arizona 2.6% 25 Pennsylvania $ 938 Aal 26 Ohio 2.4% 26 Ohio $933 Aal 27 Alabama 2.4% 27 Nevada $925 Aal 28 Minnesota 2.4% 28 South Carolina $ 917 Aaa 29 Pennsylvania 2.3% u9 Virginia $ 895 Aaa 3 Neva da 2.3% 30 Alabama $ 796 Aal North Carolina 2.3% 1 Missouri $ Aaa 32 Main e 2.2% 2 North Carolina $765 Aaa 33^ Missouri 2.2% 33 Maine $760 Aa2 34 Michi gan 2.1% 34 Michigan $ 748 Aa2 Virginia 2.1% 35 Arizona $ 736 Aa2 36 Vermont 1.8% 36 Vermont $709 Aaa 37 Idaho 1.7% 37 New Hampshire S665 Aal 38 New Hampshire 1.6% 38 Oklahoma $570 Aa2 39 Oklahoma 1.6% 39 Idaho S538 Aa1* 40 Indiana 1.5% 40 Texas S520 Aaa 41 Texas 1.4% 41 Indiana S492 Aaa* 42 Montana 1.1% 42 Colorado $ 400 Aa1* 43 Arkansas 1.0% 43 Montana $ 358 Aal 44 Colorado 1.0% 44 North Dakota $ 327 Aal* 45 Tennessee 0.9% 45 Tennessee $ 318 Aaa 46 North Dakota 0.8 % 46 Arkansas $ 312 Aal 47 South Dakota 0.4% 47 South Dakota $135 NGO** 0 Iowa 0.2% 48 Wyoming $77 NGO** 49 Wyoming 0.2% Iowa $73 Aaa* 50 Nebraska 0.0% 50 Nebraska $ 15 NGO** MEAN: 3.2% MEAN : $ 1,297 MEDIAN: 2.5% MEDIAN: $936 Puerto Rico 75.7%** Puerto Rico $10, 167 A3*** ** Thi s figu re i s based on 2008 P ersonal Incom e. It is not includ ed in any totals, * Issuer Rating ( No G.O. Debt) means, or median calculations but is provided for comparison purposes only. ** No General Obligation Debt *** This figure is not included in any totals, means, or median calculations but is provided for comparison 0 FA5g 4 Stc &5 c rimed FA-RA bi cut 3 rt- n 0

73 1) PUBLIC FINANCE TABLE 3 Total Net Tax Supported Debt ($ 000's) RATING TABLE 4 Gross Tax Supported Debt ($000's) GROSS LO NET RATIO 1 California $87,320,000 Al.1 California New York $ Aa2 New York $ New lersey $31,951,013 Aa2 3- New lersey S37, Massachusetts $30,371,476 Aal 4 Massachusetts $31,588, Illinois $23,957,015 Aa3 5 Florida $28,982, Florida $20,819,974 Aal 6 Connecticut $24, 560, Z Connecticut Aa2 7 Illinois $24,386, Washington Aal 8 Washington $23,073, Aaa 9 Michigan $22,203, Pennsylvania Aal 10 Texas $19,055, Georgia S11.011,066 Aaa 11 Minnesota $17,901, Ohio $ Aal 12 Pennsylvania $17,231, Wisconsin $9,726,313 Aa2 13 Ohio $16,217, M arviana.ln.n OR 14 Oregon $15,372, Michigan $7,461,594 Aa2 15 Wisconsin $11,246, Kentucky $7,269,586 Aal* a Virginia $ North Carolina $7,174,650 Aaa cz^ Georgia $ Oregon $7,110,604 Aal 18 Colorado Virginia $7,056,177 Aaa Maryland on 20 Louisiana $5,708,165 Aa2 _20 Alabama Arizona $5,463,418 Aal 21 Louisiana $7,848, Minnesota $5,176,063 Aal Utah $ 7,750, Hawaii $4,856,686 Aa2 Kentucky $7,269, Missouri $ 4,672,127 Aaa 24 North Carolina $7,174, Mississippi $4,364,174 Aa2 25 Hawaii $ South Carolina S4,184,210 Aaa 26 Arizona $5,521, Alabama Aal 27 Tennessee $5,200, Kansas Aal* 28 Maine $5,035, Indiana $3, Aaa* Indiana $5,026, New Mexico Aaa Missouri $4,743, Utah $2,665,545 Aaa 31 South Carolina $4,384, Nevada $ Aal 32 Mississippi $4,364, Rhode Island S2240,527 Aa2 33 Alaska $4,057, Delaware $2,202,968 Aaa 34 Arkansas Oklahoma $2,100,583 Aa2 35 New Mexico $ Colorado $2,011,683 Aal** West Virginia S3,898, Tennessee $2,003,673 Aaa Delaware West Virginia $1,962,926 Aa2 38 Kansas $ Maine $1,002,485 Aa2 Rhode Island S3,391, Alaska $939,600 Aal 40 Iowa $3,187, Arkansas $900,483 Aal 41 Nevada $3,085, New Hampshire $880,871 Aal 42 New Hampshire $2,227, Idaho S Aal* 43 Oklahoma $2,124, _ Vermont S Z Aaa 44 Idaho $1,636, Montana $349,260 Aal 45 North Dakota $1,358, Iowa $ Aaa* 46 Vermont $1,352, Z North Dakota Aal* 47 Montana $555, South Dakota S109,528 NGO** 48 South Dakota $498, Wyoming $42,066 NGO** 49 Nebraska $ Nebraska $27,032 NGO** 50 Wyoming $42, Totals $460,009,6500 Totals $610,395,823 MEAN: $9,200,193 MEAN. 12,207, MEDIAN: $4,274,192 MEDIAN Puerto Rico $40,200,990*** A3 Puerto Rico $44,688, * Issuer Rating (No G.O. Debt) ** No General Obligation Debt *** This figure is not included in any totals, means, or median calculations but is provided for comparison purposes only. ** This figure is not included in any totals, means, or median calculations but is provided for comparison purposes only. O 4;1^^h s to es are, t ent Pry A bid au 3 roa`vnn ct e ce,^^ Ri

74 U.S 3LIC I INA!ICE TABLE 5 Net Tax-Supported Debt as % of Gross State Domestic Product 2009 NTSD TO STATE GDP RATIO 2010 NTSD TO STATE GDP RATIO 1 Massachusetts 7.98% 1 Massachusetts 8.32% 2 Hawaii 7.63% 2 Hawaii 8.11% 3 Connecticut 7.41% 3 Connecticut 7.91% 4 New lersey 6.82% 4 New lersev 6.73% 5 New York 5.15% 5 New York 5.35% 6 Mississippi 4.96% 6 Mississippi 4.75% 7 Washington 4.40% 7 Rhode Island 4.73% 8 Kentucky 4.15% 8 California 4.73% 9 Rhode Island 4.08% 9 Kentucky 4.65% 10 Illinois 3.92% 10 Washington 4.60% 11 Oregon 3.85% 11 Oregon 4.40% 12 California 3.68% 12 Wisconsin 4.05% 13 New Mexico 3, 68% 14 Wisconsin 3.4S% Delaware 3, 56% 15 West Virginia 329% 15 New Mexico 352% 6_ Maryland 3.21% 16 MaNlannd 3.35% Delaware 3.02% 17 West Virginia 318% 1$ Kansas 2.79% 2, 80% 19 Florida 2.76% 199 Georgia 2.77% 20 South Carolina 2.66% 20 South Carolina 2.68% 21 Louisiana 2.48% 21 Kansas 2.62% Georgia 2.44% 22 Louisiana 2.57% 23 Ohio 2.39% Z Utah 2.43% 24 Alabama 2.35% 24 Ohio 2.28% 25 Pennsylvania 2.22% 25 Arizona 2.24% 26 Arizona 2.13% 26 Alabama 2.20% 27 Maine 2.04% 27 Pennsylvania 2.14% 28 Michigan 2.02% 28 Minnesota 2.08% North Carolina 1.96% 2 Maine 2.02% 30 Minnesota 1.79% 3 Missouri 1.96% 31 Vermont 1,75% 31 Alaska 196% 32 Nevada 1.74% 32 Michigan 1.95% Missouri 1,73% 33 Nevada 186% a Virginia 1, S8% North Carolina 1,79% 35 Idaho 1.50% 3 Virginia 1.78% 36 Oklahoma 1.37% 36 Vermont 1,73 % 37 Alaska 1.32% 37 Idaho 1.58% 38 Indiana 1.23% 38 New Hampshire 1.47% 39 New Hampshire 1.20% 39 Oklahoma 1.43% 40 Utah 1.16% 40 Indiana 1.24% 41 Arkansas 1.12% 41 Texas 1.05% 42 Montana 1.10% 42 Montana 0.97% 43 Texas 1.10% 43 Arkansas 0.92% 44 North Dakota 0.80% 44 Colorado 0.81% 45 Colorado 0.71% 45 Tennessee 0.79% 46 South Dakota 0.63% 46 North Dakota 0.68% 47 Tennessee 0.59% 47 South Dakota % M Iowa 0.18% 48 Iowa 0.16% 49 Wyoming 0,14% 49 Wvomine 0, 12% 50 Nebraska 0,04% SO Nebraska 0.03% MEAN: 2,63% MEAN 2,78% MEDIAN: 2.18% MEDIAN: 2.22% *Gross Domestic Product by State numbers have a 1-year lag. as ei»c

75 U.S. PUBLIC FINANCE TABLE 6 NET TAX- SUPPORTED DEBT AS A PERCENTAGE OF PERSONAL INCOME Alabama Alaska Arizona Arkansas California Colorado Connecticut De aware Florida Geor is Hawaii Idaho Illinois Indiana low Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi, Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York ^North Caolinnaa Nor l)akota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Vermont Vir inia Washington West Virginia Wisconsin Wyoming _0 1_ Median s s are (b#ea AAA by &U 3 rte,; c ao

76 U.S. PUBLIC FINANCE s Retated Research» Annual Sretor.Outlook for US State Governments Februtr-, 20] » US States Credit Scorecard, IFebrua rv (1229» US State and Local Governments Remain Inherently Resilient, Despite Growing Pressures _! 54)» Variable Rate Issuance Down Despite Neat- Record Volume i 7LIS Municipal Market, February 2010^123292^» tooc{ state Rating Metlrodalo ti_noveniber 2004 (8^)335 To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients. t

77 lki U.S. PUBLIC FINANCE Report Number: SF3.11.,'_:;3 Author Senior Associate Kimberly Lyons Robert Canfield Senior Production Associate Shubhra Bhatnagar 2010 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S") All rights reserved. CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL IN FORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. 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78 U.S. States Credit Scorecard

79 U.S. PUBLIC FINANCE SPECIAL COMMENT U.S. States Credit Scorecard Updated Results Include Addition of New Variables Table of Contents: SUMMARY 1 SCORECARD RESULTS: 21 STATES C i\nge TIERS. PARTLY REFLECTING NEW VARIABLES IN HEAVILY-WEIGHTED FINANCE AND GOVERNANCE CATEGORIES 2 SCORECARD REFLECTS STATE RATING ME1HODOLOGY: STATE RANKINGS ANT} TRENDS INFLUENCE, BUT DO NOT DETERMINE RATING 3 APPENDIX A: DETAILED DESCRIPTION OF VARIABLES APPENDIX B APPENDIX C APPENDIX D RELATED RESEARCH Analyst Contacts: NEW YORK ('lic'it}las Ssrnuols 5 E , Vk:e Presli.lori l"-s,e 5o:' i r,st N, ichcc 21 as..saimue s.^a;moodys.cr;m P icole.io i^son 212,55 573, Senior V ce PresideN:: Nicole. :hr:ronc? rrtc;c;dys.corr? Emily Rairnes Vi ce i'resi d P nt-senio- Ai tai"y'st r y.ra 'nocdys.co}rt ;hark lenonhaus Vice ^'r:'tiitl rire l-$?.?3?i Jr Aneeyst ;':ark re.eri au e;tr:ocurys.com ,0849 Summary This edition of Moody's U.S. States Credit Scorecard is the fourth annual publication of a quantitative analytic tool that enhances the consistency of our state general obligation (G.O.) credit analysis. The scorecard compares certain data and other variables in the four fundamental categories of state credit analysis outlined in Moody's State Rating Methodology: finances, economy, debt and governance framework. The scorecard helps to identify statistical trends within the state sector and enhances the statistical facets of our analysis. However, it is important to note a key limitation of the scorecard: the results are backward-looking, using only historical data. The results inform the rating process, but do not determine Moody's G.O. ratings. The scorecard provides relative rankings of the 50 states on the most important statistical variables included in Moody's credit analysis of U.S. state governments. The quantitative data and rankings are used in the rating process to enhance state comparative analysis and identify sector trends. Variables related to states' financial best practices and measures of institutional financial flexibility are also incorporated into the scorecard. These are updated annually to reflect any changes in governance framework since our last report. This version of the scorecard provides 2009 results and compares them to the 2008 results. It also adds variables to the finance and governance framework categories that further support our fundamental.. approach to state ratings. The new variables-which focus on variable rate debt, available liquid resources, swaps, and governance of state rainy day funds-are particularly timely additions in the context of recent credit market disruption and states' responses to the ongoing economic downturn. Going forward, we expect to introduce more variables into the scorecard to capture other important comparative data, such as one related to other post employment benefits (OPEB) liabilities.