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Bond rating another reason to celebrate
Hill Jack
Sen. Jack Hill

On June 8, the state sold $1.37 billion (net $1.026 billion) in bonds for projects around the state. The Georgia State Financing and Investment Commission approved the bids and handled the sale. The state has so consistently done well selling bonds and maintaining its AAA bond rating from all three underwriters that we may take this success for granted, but that would be far from the truth.

Look around the country and see what is going on with other states. It really makes you realize that operating a state in a business-like manner, addressing fiscal issues, passing budgets and balancing those budgets and not just making financial plans but sticking to them, all lead to confidence by the bond underwriters and those who purchase bonds.

In short, how you run the state is important and does not go unnoticed. Georgia is one of only 12 states today rated AAA by all three rating agencies.

Just as a comparison, here are some states and their rating changes:

• Alaska—Just downgraded from AAA because of budget deficit.

• Connecticut—Lowered to AA-, citing $250M general fund deficit and only $406M in reserves.

• Illinois—Textbook case on how not to run a state. Entering second year without a budget; pension funds underfunded by half and $2M monthly in lost interest; not paying lottery winners at one time.

• Kansas—Lowered rating from AA2 “stable” to “negative” due in part to large tax cuts that have reduced revenue and a long history of underfunding pension plans.

• Kentucky—Lowered rating a few months ago due to state not making the required contributions to state retirement plans.

• Louisiana—Lowered to AA-/stable—Underwriters cited a history of unbalanced budgets with one-time solutions, the pressure of lower energy prices on state revenues and insufficient appropriations to the state’s Medicaid program.

• North Dakota—Lowered to negative rating AA1 because of magnitude of current budget gap from revenue decrease.

• Oklahoma—Lowered AA2 stable to negative due to budget deficit and falling energy prices.

• New Jersey—Revised outlook on present rating from “stable” to “negative” which can precede a downgrade over time.

• Pennsylvania—After governor conceded defeat on passing a budget, S&P removed the “Watch” rating but continued the “Negative” outlook. Much will depend on what the FY 17 budget ultimately calls for in revenues and spending.

• West Virginia—Lowered to AA- from AA, outlook “stable.” Due to downward pressure on state’s economy due to weakness in energy sector, specifically coal, and no budget yet.

(Spoiler alert — this may be boring)

This bond sale just completed in June contained 4 different series of general obligation bonds. A portion of the bonds will refund outstanding bonds to achieve savings.

Here are the interest rates earned by Georgia’s AAA rating with the bond underwriters:

• 5-year tax-exempt bonds—0.92 percent

• 10-year tax-exempt bonds—1.31 percent

• 20-year tax-exempt bonds—2.38 percent

• 5-year taxable bonds—1.35 percent

• 20-year taxable bonds—2.63 percent

• The “blended” rate on federally taxable bonds was 2.58 percent. The interest on all of the bonds is exempt from Georgia income tax for Georgia residents who purchase them.

How is the $1.026B net bond sale being spent?

• University System construction and equipment—$287 million

• K-12 schools facilities and equipment—$248 million

• Technical College System construction and equipment—$126 million

• Transportation projects—Over $100 million

• Economic development and water/sewer projects—$80 million

Percentage-wise, that’s 40 percent for Higher Education, 24 percent for K-12 Education, 11 percent for Transportation and 8 percent for Economic Development water/sewer projects. That leaves 17 percent for the rest of state government.

A complete list of bonds sold is located at the GSFIC Web site (

Georgia’s debt management plan

For years, Georgia’s leadership has put together a plan to manage the debt the state incurs. It provides a roadmap for the future that allows for state growth, but keeps a control on state debt. Georgia’s debt per capita has traditionally been one of the lowest in the country, an excellent record for a growing state.

The State’s Debt Management Plan can be accessed also at under “Financing & Investment Division” and scroll down to “Debt Management Plan.”

Georgia continues to impress rating underwriters

When we read the comments about the state’s leadership, the conclusion is that Georgia is and has been well-run fiscally by its current and past leaders and the reputation the state has is well-deserved.

Fitch—“Since (the recession), Georgia has maintained a conservative approach to fiscal management, limiting spending growth and rebuilding the RSR balance. The state’s long-term liability burden is low.”

Moody’s—“Georgia remains an above-average performer in the South, which is supported by population growth that exceeds the nation’s and will help support the housing and personal service industries. The state has regained the jobs it lost during the recession and its economic recovery continues at a healthy pace.”

Standard & Poor’s—“Over the medium and long-term, we believe that Georgia’s low cost of living, strong transportation network, weather and favorable business costs are likely to continue attracting business investment and jobs to the state.”

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