S&P: State in Decent Shape

Alabama’s economy may have slowed recently due to rising gas prices and a contraction in manufacturing, but a constitutional provision called proration that mandates cutbacks will protect fiscal stability in the event of revenue shortfalls, Standard & Poor’s said in a review of the state’s credit on Tuesday.

The state has approximately $750 million of outstanding general obligation debt that is rated AA with a stable outlook by Standard & Poor’s.

The agency said Alabama has a large and diversifying economic base, dedicated revenue streams for capital projects and debt service, and a low GO debt burden. Those aspects are offset by declining income and sales tax revenues, planned use of reserves and one-time revenues in two major operating funds, and a restrictive state tax structure.

“Despite Alabama’s limited revenue-raising flexibility, we expect the state will make necessary adjustments through proration in mid-fiscal 2009 should sales and income tax projections prove too optimistic,” analyst Sussan Corson said in a statement.

“Furthermore, we expect that, while higher oil and gas prices could continue to pressure sales tax growth and the automobile manufacturers, in the near term higher mineral prices should benefit oil and gas revenue that flows into the state’s general fund,” Corson added.

Alabama’s GOs are also rated AA by Fitch Ratings and Aa2 by Moody’s Investors Service.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER