Utah Gov. Gary Herbert and Treasurer David Damschen announced that S&P Global, Moody’s Investors Service and Fitch Ratings have reaffirmed Utah’s AAA credit rating – the highest rating a state can receive.
The rating affirmations coincide with a legislatively authorized $447.3 million general obligation bond sale, which enables the state to pivot from cash-funded infrastructure to bond financing and free up funds for more urgent needs as the state faces a budget shortfall triggered by the coronavirus pandemic.
“My team in the Office of State Treasurer and staff in the Governor’s Office of Budget and Management have worked quickly and diligently to pull together the bond transaction, which gives the Legislature nearly half a billion in essential budget flexibility during this time of health and economic crisis,” Treasurer Damschen said. “Utah’s history of strong fiscal management coupled with the preparations the state has made over the last decade to weather economic storms factor into our exceptional rating. Not only were we able to access the market during this volatile time, but we were able to save taxpayer dollars with record-low borrowing costs.”
The true interest cost of the transaction is 1.156%. The proceeds from the sale will be used for transportation projects and the prison construction, and the money that has been set aside in the budget for those projects can be reallocated or cut.
“In Utah, we are thorough and collaborative in our fiscal management. We have worked closely with the Legislature to adhere to the principles of fiscal discipline and budgetary restraint, making our state one of only a handful to receive a AAA rating by all three rating agencies,” Gov. Herbert said. “We have been preparing for an economic downturn since the Great Recession by building robust rainy day funds and conducting regular stress-testing budget exercises.”
Rating agencies base their ratings on a range of financial, economic, managerial and institutional factors. Utah’s history of continuous AAA bond ratings dates back to 1965, when S&P initiated its rating system. The state’s AAA rating with Moody’s commenced in 1973 and with Fitch Ratings in 1992.
As cited in the rating reports, the agencies’ rationales for Utah’s strong ratings include:
The state is well-positioned to address an economic downturn, given its broad control over expenditures, revenue raising capacity and maintenance of sound reserves that accumulate based on a statutorily determined formula.
It is anticipated the state will continue to demonstrate proactive fiscal management, including operationalizing its budget stress testing plan, which includes bonding for infrastructure previously anticipated to be cash-funded and utilizing informal reserve funds before drawing on formal reserve funds.
It is anticipated the state will address short-term liquidity pressure with no interruption in timely payments for key operating expenses, including debt service. State officials do not expect the extension of its deadline for filing personal and corporate income tax payments to July 15 to create any liquidity issues.
The state has taken action to help limit the effects of the COVID-19 outbreak in Utah. Earlier this year, the governor declared a state of emergency and requested the shutdown of non-essential businesses, among other directives such as social distancing, through May 1, 2020.
The state, in coordination with local governments, public health experts and business and community leaders, has released a comprehensive plan for the state’s health and economic recovery, including the creation of public-private partnerships to improve testing capability and contact tracing and the identification of sources of support for businesses and households.