In Latest Good News for Indiana, S&P Affirms Its Triple-A Rating

CHICAGO — Indiana has enjoyed a spate of good news lately.

Standard & Poor’s last week affirmed the state’s prized AAA rating, and fiscal officials announced that recent revenue figures continue to exceed expectations. A new national report, meanwhile, notes that the Hoosier State’s economy saw the third-largest growth rate last year, driven by a recovery in manufacturing.

One challenge that looms is a brewing showdown between Indiana and the Obama adminstration over Medicaid funding. Republican Gov. Mitch Daniels last month signed into law a measure that cuts all federal funding for Planned Parenthood.

Federal Medicaid officials last week said the move is illegal, and threatened to strip Indiana of all of its Medicaid funding — $4.3 billion annually — if it follows through with the new law.

In affirming its triple-A rating, Standard & Poor’s cited Indiana’s diversifying economy, low debt levels, strong budget management, and the new two-year budget passed last month.

“The AAA [issuer credit rating] on Indiana reflects the state’s proven commitment to and dramatic focus on strengthening the budget and structural balance through extensive use of management controls that has led to maintenance of solid reserve levels despite underperforming revenues during the recession,” analyst Steffanie Dyer wrote in the rating report.

Indiana does not issue general obligation or tax-supported debt, but does have $3.1 billion of outstanding appropriation-backed bonds. Debt service for the appropriation-backed bonds totaled 2.5% of the state’s general fund expenditures in fiscal 2010 — considered a moderate level by Standard & Poor’s.

Nearly $1 billion of Indiana’s appropriation debt was issued for the state’s new stadium and convention center, which will house the National Football League’s Indianapolis Colts. That $987 million of debt is backed by a variety of levies, including hotel and car-rental taxes, food and beverage taxes, and admission taxes.

Like most states, Indiana is starting to see an uptick in revenue. All of the state’s revenue sources are up so far this year compared to last year except for riverboat gambling collections, the state said in a report detailing May receipts.

For the first 11 months of fiscal 2011, general fund revenues exceed recent projections by $128 million, or 1.1%, though they trail the May 2009 forecast that helped craft the current budget.

Individual income tax collections were up 17.3% compared to last year, a dramatic increase that officials attributed in part to employment growth.

Meanwhile, a report by the U.S. Commerce Department’s Bureau of Economic Analysis released last week showed that Indiana saw the third-highest growth in its gross domestic product last year. Indiana’s GDP grew 4.6% last year, behind only North Dakota at 7.1% and New York at 5.1%, the report said. A recovery in durable-good manufacturing drove the growth, the report said.

Indiana carries a triple-A rating from Moody’s Investors Service and AA-plus from Fitch Ratings.

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