NM’s credit rating holds steady despite challenges

Outlook improves as agencies cite state’s hefty cash reserves

SANTA FE — New Mexico’s bond rating is holding steady despite pandemic-related economic challenges and large unfunded pension liabilities, two national credit rating agencies affirmed this week.

And one of the rating agencies, S&P Global Ratings, upgraded the state’s rating outlook to stable from negative, saying New Mexico appeared well positioned to navigate headwinds that include federal policy changes regarding oil and natural gas drilling on public lands.

Both rating agencies cited New Mexico’s hefty cash reserves, which are projected to hit nearly $1.8 billion for the budget year that starts in July — or about 24% of total state spending.

The state’s cash reserves have been critical in recent years to ensure New Mexico can absorb big revenue swings caused by fluctuations in oil prices and production, as the oil and natural gas industries make up more than 40% of the state’s total revenue base.

“We have been doing everything we can to navigate the pandemic to ensure our revenue streams and economy can sustain strong bond ratings,” state Finance and Administration Secretary Debbie Romero said in a Friday statement.

She also said the steady ratings would help show New Mexico bonds are a stable investment.

New Mexico’s credit rating was previously downgraded twice in a two-year period leading up to 2019, due to lingering pension concerns and high Medicaid enrollment, among other factors.

Credit ratings are closely watched by investors and budget officials alike, and rating downgrades can lead to higher

borrowing costs for infrastructure projects.

In its update this week, Moody’s Investors Service, one of the two credit rating agencies, kept New Mexico’s AA2 bond rating intact but said the state faces other “fundamental” challenges that include low income levels and a lack of economic diversity.

Meanwhile, S&P Global Ratings said New Mexico’s reliance on oil and natural gas would continue to pose risk, but said the state was better prepared for bust cycles than in past years.

“Our rating anticipates that New Mexico will make efforts to keep reserve balances at strong levels during cyclical upturns to help ride out the inevitable cyclical downturns, as it has done historically,” the rating agency said in its report.