Credit analyst gives state AA+ rating ahead of bond sale
Photo | Flickr | Ajay Suresh
The Massachusetts State House
A leading credit evaluation agency shared some of its view of Massachusetts's financial picture this week as it blessed early 2024 bond sales with its second-highest rating.
The state is planning to offer just shy of $2 billion in general obligation revenue bonds by negotiation in two slates: a combined $1.39 billion around Jan. 10 or Jan. 11, and then another $600 million by the first week of February. Fitch Ratings announced Tuesday evening that it has assigned an 'AA+' rating and stable outlook to the bond sale, which it said is to "finance or reimburse the Commonwealth for various capital expenditures and refund outstanding bonds."
Breaking its rating down into its key drivers, Fitch gave its highest mark to the Bay State's revenue and expenditure frameworks, as well as the state's operating performance. The long-term liability burden was scored one peg below.
The agency said it sees "strong" prospects for baseline tax revenue growth "driven by the commonwealth's underlying diverse economy that includes a significant knowledge-based industry component." Fitch said that Massachusetts, like "most states" is likely to see the "natural pace of spending growth" slightly outpace expected revenue growth over time, which will require "ongoing cost control." Beacon Hill, the agency said, has "ample ability to reduce spending through the economic cycle."
Risks noted in the Fitch report included the potential for a slowing of revenue growth that "signals the commonwealth's revenue growth prospects will trail national economic growth;" rapid growth in spending for fixed costs like pension liabilities, which "weakens Massachusetts' expenditure flexibility;" or an increase in the state's long-term liability burden pushing it above 20 percent of personal income.
Fitch also pointed to a handful of things that could nudge the state's credit rating even higher, including a sustained reduction in the long-term liability burden to get it closer to, or below, 10 percent of personal income; and "continued efforts to maintain structural balance during periods of economic growth."
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