NC's strong bond ratings confirmed

Posted July 7

NC Flag, Legislative Building, Raleigh

— The three major bond rating agencies have re-affirmed North Carolina's triple-A bond rating, State Treasurer Dale Folwell announced Friday.

The ratings, all with stable outlooks, mean the state can continue to borrow money for major projects at lower interest rates. It's going to market soon on $106 million in general obligation bonds and another $300 million in certificates of participation and limited obligation bonds.

Agency rundowns include analysis from the state budget approved last month, which invested heavily in the state's "rainy day" reserve fund and included individual and corporate income tax cuts. Those cuts, some Democrats have argued, will create a big hole in the budget in future years as the bill comes due for what they have called unsustainable cuts that largely benefit the wealthy.

This did not throw off the ratings from Fitch, Moody's or Standard & Poor's, all of which gave North Carolina bonds top marks.

"They have never mentioned it – ever," said Folwell, who liaised with analysts for two weeks on the ratings. "What they have mentioned, positively, is the amount of money North Carolina has in its rainy day fund."

Also a plus: North Carolina distinguished itself from other states by managing to pass a budget before the July 1 start of the fiscal year, Folwell said.

Agency reports do note the state's fiscal flexibility, based in part on its willingness to raise taxes coming out of the last recession. That was under a Democratic regime, though, not the Republican one that holds a veto-proof majority in the legislature today.

"I wouldn't say that we're not concerned or it's not a problem," Fitch analyst Karen Krop said of the new tax cuts. "Our rating says we expect state to manage within its revenues.

"At the moment, it is not a big issue," she said. "We recognize that there will be a tempering of revenue growth (from the cuts), and we would expect the state to manage within it."

Standard & Poor's said market forecasts that it relied upon predict "robust economic expansion" for North Carolina in 2017 and 2018, which should help the state manage as it restructures its tax laws. The analysis said the economic growth is particularly due to available affordable housing and the state's favorable climate. State government, the group said, has a "long history of prudent fiscal management."

Standard & Poor's gave the state a budgetary performance score of 1.2. On that scale, 1.0 is the strongest and 4.0 the weakest.

The state plans to sell its next round of bonds next Thursday. They'll be refunded to take advantage of lower interest rates, potentially saving more than $60 million, Folwell's office said. North Carolina, his office said, is one of only 12 states to have a triple-A bond rating with all three agencies.


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