State bond rating upgraded to ‘stable’
The bond rating service Moody’s has upgraded Oklahoma’s status from negative to stable, which could make investors more eager to lend the state money after years of financial turmoil.
Moody’s affirmed the State of Oklahoma’s Aa2 rating, but revised the state’s outlook from negative to stable. While a negative outlook connotes downward pressure and the possibility of a downgrade, a stable outlook translates to stability and the rating agency’s belief the rating will remain unchanged for the next 12-24 months.
Aa2 is Moody’s thirdhighest rating, and issuers with this rating are judged to be of high quality and are subject to very low credit risk.
Moody’s Investor Services noted that Oklahoma’s economy weathered a downturn in the oil and gas sector and recently experienced gradual expansion buoyed by improved revenue collections.
Gov. Mary Fallin said Thursday that the historic tax package approved by lawmakers last year helped stabilize government finances and show investors the state was on the right track. After years of budget shortfalls, state officials agreed to raise taxes on cigarettes, motor fuel and the production of oil and gas. Fallin said efforts to reduce reliance on onetime sources of revenue helped Moody’s make their decision, as well.
“Our budget solutions along with our improving economy also allowed us to replenish the state’s savings account, which also is a factor considered by Moody’s,” Fallin said. “Last month we deposited $370 million into the Rainy Day Fund, which brings the balance to about $451 million — a far cry from the $2.03 that was in it when I became governor.”
Moody’s has consistently drawn negative assessments of Oklahoma’s bonds during the state’s years-long financial crisis. Then in November, Moody’s lowered the state’s outlook to negative after legislators failed to reach any long-term revenue measures. The analyses are used by investors who buy into the bonds with an expected rate of return. Moving from “negative” to “stable” could lure more investors make it easier for the state to borrow money at a better interest rate.
One major project that could receive funding from bonds is the construction of two new prisons. The Department of Corrections is now gathering details about that proposal.
The service said it could again upgrade Oklahoma’s bond rating if improvements are made to reduce or eliminate structural deficits, substantially increase financial reserves and diversify the economy beyond the energy sector.
Factors leading to a downgrade could be another depletion of the Rainy Day Fund, continued use of one-time revenue and a prolonged economic weakness.
“The rating agencies are very thorough and methodical when they consider changing a state’s rating outlook,” said State Bond Advisor Andrew Messer. “Improvements in the economy and budgeting practices were instrumental in making the case for this upward adjustment.”