Moody's Outlook for Arizona Shifts to Stable From Negative

DALLAS — With Arizona’s revenues and economy steadily improving, Moody’s Investors Service has revised its outlook on the state’s Aa3 issuer credit rating to stable from negative.

“State officials are currently projecting budget-basis operating surpluses for fiscal 2012 and 2013,” analysts said.

Standard & Poor’s had revised its outlook on the state’s AA-minus issuer rating to stable from negative on Dec. 21. Fitch Ratings does not rate the state.

The turnaround comes as the Legislature seeks to buy back three buildings in its state capitol complex that were mortgaged in 2010 to balance the budget.

Gov. Jan Brewer proposed that the state spend $106 million in the current fiscal year to buy back the buildings as Arizona celebrates its centennial.

Overall, Brewer wants $220 million of debt buybacks.

The debt was issued in the form of certificates of participation backed by state leases.

The COPs are rated A-plus by S&P and A1 by Moody’s.

Brewer proposed an $8.9 billion budget for fiscal 2012-13 year, which begins July 1. That would mean an 8% increase over the current $8.3 billion budget.

“The state is currently projecting a budget gap for fiscal 2014 following the expiration of a temporary sales tax enacted in fiscal 2011,” Moody’s wrote. “But the size of the gap is significantly smaller than the revenue generated by the sales tax and appears manageable.”

A significant contributor to the improved budget was federal approval of a Medicaid waiver that Arizona requested, according to analysts. The waiver has allowed the state to contain program costs.

“Although it has made temporary and permanent expenditure reductions in recent years, including enacting a temporary one-cent sales tax increase that expires at the end of fiscal 2013, it has also pulled in what we consider significant one-time outside reserves and used deficit bonds to bridge gaps,” Moody’s said.

Brewer, who touted Arizona’s recovery when President Obama visited the state in January, accused Obama of impeding the nation’s economy by providing financial stimulus and seeking new health care insurance laws.

In a statement about Obama’s visit, Brewer suggested that the United States government follow Arizona’s example.

“This much is clear — Arizona is on the way back, with job growth over the last year rated seventh-best nationally,” Brewer said.

“Our state budget is not only balanced, we have a surplus,” she added.

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