South Dakota Wins Positive Outlook from S&P

CHICAGO — Standard & Poor's revised its outlook to positive from stable on South Dakota, putting the AA-plus rated state on track for a prized triple-A rating.

Strong reserves, a fully funded pension obligation, and an expanding economy helped drive the positive action, analysts said. It also reflects the 2013 enactment of new budget and revenue projection policies.

"We base the outlook revision on our view of recent legislative and executive changes formalizing aspects of the state's budget planning and monitoring processes, South Dakota's positive revenue and economic trends, and its historical record of conservative budgeting and structural budgetary balance," analyst Sussan Corson wrote in the ratings report.

S&P may upgrade the state within the next two years if it continues its "prudent fiscal management and structural budgetary balance," Corson added.

Gov. Dennis Daugaard, in a recent column in the Rapid City Journal, said officials had met with S&P and Moody's Investors Service in early July and touted the state's strengths to "achieve the favorable rating we deserve."

The move comes as the South Dakota Building Authority comes to market with $48 million of new-money and refunding bonds. The bonds are rated AA by S&P, one notch below its issuer rating, and are secured by lease payments from state agencies and are subject to annual appropriation.

The deal is set to price Aug. 12, according to Don Templeton, the authority's executive director. Of the new-money piece, $34.2 million will finance a new football stadium at South Dakota State University. The stadium's price tag will total $65 million, with private donations and university cash covering the non-bond part of the project.

The deal also includes $12.4 million of refunding bonds for savings. BMO Capital Markets is the senior underwriter.

Standard & Poor's is the only of the three major ratings agencies to maintain an issuer rating on the state, which does not issue general obligation bonds.

South Dakota has a long history of strong financial operations and strong reserves, analysts said. The South Dakota Retirement System is fully funded and the state enjoys low levels of debt and other long-term liabilities. Its economy and revenue have been growing as well.

State lawmakers in the winter session passed new budget policies that include an allocation of budget surplus, as well as stronger revenue projections and debt management practices.

One challenge could come from the state's reliance on federal funding, which could be reduced, analysts said.

Moody's Investors Service does not maintain an issuer or general obligation debt rating on the state. It has an Aa2 rating on lease-backed bonds. Fitch Ratings has an AA rating on its lease-backed bonds.

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