DALLAS - Arizona received its second upgrade since passing its fiscal year 2016 budget, as Standard & Poor's raised the state's issuer credit rating to AA from AA-minus May 20. The outlook returned to stable from positive.
Moody's Investors Service upgraded the state to Aa2 from Aa3 on May 5.
"The upgrade reflects what we consider Arizona's good fund balance position, on a budgetary basis, and expected near structural budget balance in fiscal 2016, based on recent above-budgeted growth in tax revenues," said Standard & Poor's credit analyst David Hitchcock. "This follows a period of imbalance triggered by the expiration of a temporary sales tax hike at the end of fiscal 2013."
As planned, Arizona last year drew down almost all of its large general fund balance that was a residual of the three-year, 1-cent sales tax increase used to restore balance to the budget.
With the economy steadily improving, the state now reports revenues significantly above budget because of surging income tax collections that could potentially negate the need to draw on the rainy day fund in the 2015 fiscal year ending June 30.
"The stable outlook reflects recent strong revenue growth and spending restraint that we expect to keep Arizona near structural balance in fiscal 2016 and for the foreseeable future, as well as limited future debt plans," Hitchcock said. "Should large structural budget imbalances develop again, we could adjust our rating or outlook downward. Rating improvement would likely require improved income levels and lower pension liabilities."
