New York State General Obligation Debt Upgraded To 'AA+'

Standard & Poor's Ratings Services has raised its rating on New York State's general obligation (GO) bonds to 'AA+' from 'AA' and raised its rating on New York State's state appropriation-backed bonds to 'AA' from 'AA-'. The outlook on both ratings is stable.

"This upgrade is based on our view of a strong state budget management framework as indicated by New York State's recent history of improved structural budget balance with a strong focus on spending restraint and on-time budgets," said Standard & Poor's credit analyst David Hitchcock.

The enhanced structural budget alignment has contributed to relatively modest projected out-year budget gaps, which we view positively from a credit standpoint.

Offsetting factors in our view include significant post retirement liabilities and the volatility of state revenues, due in part to reliance on income tax revenue generated from the financial industry, as well as a progressive tax structure.

The GO bonds are secured by the full faith and credit of New York State, while the appropriation secured debt is secured by payments subject to annual state appropriation.

The stable outlook reflects what we view as near structural budget balance, following four years of focus on expenditure restraint in key program areas with less controversial budget deliberations, which have translated to on-time budget enactment. The enhanced structural budget alignment has contributed to relatively modest projected out-year budget gaps that we view positively from a credit standpoint.

In addition, New York State projects what we see as modest general fund projected budget gaps in future years. The modest projected out-year gaps are, in our opinion, largely due to recent restraint in school aid and Medicaid expenditure growth, which have been major cost drivers over time. Should the state fall back into structural imbalance or if financial performance deteriorates significantly due to economic or federal funding changes, we could revise the outlook or lower the rating. The state's large unfunded OPEB, moderately high debt levels, modest rainy-day fund, and steady, but slow growth trends, currently restrain the state from further upward rating improvement.

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