State credit ratings holding up, and then some

At a time of high public debt and debate over federal debt ceilings, one might think that public credit ratings have suffered in the process. Standard & Poor’s recently issued a warning to the U.S. government that it risked a credit downgrade if it could not get its fiscal house in order.

Yet despite lingering budget deficits for many states, credit ratings for district states have either improved or merely remained strong over the past few years. Historical credit ratings from Moody’s, compiled on all states by the Federal Reserve Bank of Philadelphia from public files, show that state credit ratings on general obligation bond debt don’t change much over time (see chart).

While district states don’t have perfect credit ratings, it helps put recent fiscal difficulties into some context. North Dakota only started receiving a credit rating in 2000, and at a comparatively timid Aa3 (or seven on a credit scale of 10). But it has been rising of late thanks to the strength of that state’s economy and the underlying revenue flow to the state government.

Minnesota is the only state of the four that sits at a lower credit rating than a decade earlier, but it nonetheless has the highest absolute rating of the group. Despite repeated budget deficits over the past half decade, Wisconsin general obligation debt was upgraded last year.

Ranked among all states, district states sit in the middle of the pack. No district states received the highest AAA ratings, while nine states nationwide have that distinction. But neither were district states among the 14 receiving an Aa3 rating or lower. The two lowest-ranked states are Illinois (at A2) and California at the bottom with Baa1, only a few short ticks from junk status. Three states, including South Dakota, issue no general obligation debt, and thus receive no rating.