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NC still holds triple-A bond rating
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Published: October 7, 2009
RALEIGH - North Carolina has preserved for now its top-level credit rating — news that keeps borrowing expenses down and gives Democratic leaders a pat on the back for managing the state's difficult financial picture this year.
All three bond-rating agencies reaffirmed the state's triple-A rating before State Treasurer Janet Cowell awarded $372 million in refinanced general obligation bonds Tuesday.
The rating reflects a government's ability to repay loans and means it can get the lowest interest rates possible for its borrowing. North Carolina is one of seven states with the top rating from all three agencies, Cowell said.
The announcement means the bond-rating agencies are satisfied that North Carolina political leaders haven't made destructive fiscal decisions recently to respond to an 11 percent decline in tax collections for the year ending June 30.
Democratic Gov. Beverly Perdue pulled back spending during the last fiscal year and withheld pots of money as the shortfall reached $3.2 billion. Perdue and the Democratic-led Legislature also cut spending, injected federal stimulus money and raised taxes by nearly $1 billion for this year to help balance the two-year budget.
While higher sales and income taxes are considered temporary, "we believe the state has reacted prudently in resolving the fiscal 2009 revenue shortfall and formulating a biennium budget that is sustainable," wrote credit analysts for Standard & Poor's in affirming its triple-A rating.
Moody's Investors Service and Fitch Ratings authored similar reports, Cowell spokeswoman Melissa Waller said. Cowell said the ratings helped the state saved $26.7 million thanks to the lower interest rates when the bonds originally issued in 1999 through 2006 were refinanced.
Perdue and the General Assembly "have been effective in managing serious financial and budgetary pressure during this tough climate," said Cowell, who is also a Democrat. "It is a vote of confidence for the state that we have been able to maintain this rating through the first year of the economic crisis."
Perdue said in a news release that aggressive fiscal management "helped create this national confidence in our ability to move North Carolina forward, even in very challenging economic times."
Republicans at the Legislature criticized Democrats this year for writing a final budget that raised taxes, failing to cut unnecessary spending and exaggerating the budget gap that needed to be filled.
Rep. Dale Folwell, R-Forsyth, said citizens should be grateful for the bond ratings but said they are threatened if lawmakers don't deal with lasting fiscal challenges, such as the projected medical coverage costs for current and future state government retirees.
"There are serious long-term, treacherous systematic problems looking out the windshield for the state of North Carolina and its taxpayers," Folwell said. "We continue to spend money we don't have and make promises we can't keep."
During the last recession, Moody's removed its top credit rating from North Carolina in 2002 because it was concerned about the state's use of one-time revenue for ongoing needs and a lack of reserves.
Moody's restored the top rating in 2007, after the economy improved and lawmakers built up the rainy-day reserve fund.
The Standard & Poor's report noted the state's rainy-day fund fell this year from $787 million to $150 million. Perdue took money to narrow last year's shortfall and the Legislature gave $250 million to pay claims for the state employee health insurance plan.
But the state has other reserves that it can tap into if needed, the analysts wrote.
"The strong fiscal leadership it has demonstrated in this time of economic and revenue weakness will allow for such an event to occur and will aid in restoring balances to desired levels," the report said.
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On the Net:
Department of North Carolina State Treasurer: http://www.nctreasurer.com/dsthome
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