BRADENTON, Fla. – For the second time in four months, West Virginia has been downgraded amid the ongoing decline in the coal industry that underpins the state's economy.
Fitch Ratings lowered the state's general obligation bond ratings to AA from AA-plus on Tuesday, affecting $393.6 million of outstanding debt.
The ratings on $441.6 million of outstanding lease revenue bonds issued by the Economic Development Authority and the School Building Authority were downgraded to AA-minus from AA, and $133 million in West Virginia Water Development Authority revenue bonds was cut to A-plus from AA-minus.
The rating outlook is negative, and "reflects uncertainty as to the time frame by which the state will achieve budgetary equilibrium and the magnitude of the economic turmoil resulting from these trends," said analyst Marcy Block.
"Fitch expects that financial stress will persist until such time as the decline in coal production bottoms out and is replaced by an expansion of the state's other natural resources or another positive development," Block said.
West Virginia's revenues continue to reflect the economic volatility associated with its extensive natural resources sector, according to Fitch.
Revenues attributable to coal production are expected to exhibit persistent losses as the industry continues its long-term contraction, significantly inhibiting growth prospects for revenues overall.
"Although West Virginia has complete legal control over revenue-raising, Fitch believes realizing more healthy revenue growth will be challenging absent measures to capture revenue from other economic sectors or increased stability in the crude oil and natural gas sectors," Block said.
State lawmakers narrowly avoided a government shutdown in mid-June after Gov. Earl Ray Tomblin vetoed the fiscal 2017 budget amid a disagreement with many state lawmakers.
A revised spending plan eventually passed, closing a $270 million gap with new taxes on tobacco and e-cigarette products, the tapping of reserves, and budget cuts.
In April, S&P Global Ratings dropped the state's GOs to AA-minus from AA, and lowered its appropriation and moral obligation ratings to A-plus and A-minus, respectively.
Ratings on the West Virginia Municipal Bond Program were also lowered to AA-minus from AA, because it is linked to the state by virtue of certain program mechanics.
S&P said the outlook is stable.
Moody's Investors Service assigns ratings of Aa1 to the GOs, Aa2 to the lease revenue debt, and Aa3 to the Water Development Authority bonds.
Moody's places a negative outlook on the state's bonds.
