Demographic decline costs Vermont its last triple-A rating

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Demographic constraints that challenge Vermont's long-term revenue picture cost the New England state its lone remaining triple-A rating.

Fitch Ratings downgraded the Green Mountain State’s general obligation bonds one notch to AA-plus Thursday citing slower growth prospects amid an older population with limited chances at near-term growth.


The lower AA-plus rating applies to a deal the state is planning for the week of July 22. It will sell $84 million of 2019 series A GO bonds in a competitive offering and $41 million of 2019 series B GO refunding bonds in a negotiated sale, Moody's Investors Service said when it affirmed its Aa1 rating. Morgan Stanley is lead manager for the negotiated deal.

“The state's labor force has been flat to declining over the past decade, in contrast to slow growth at the national level,” Fitch analyst Eric Kim wrote. “Fitch anticipates limited growth in Vermont's revenues, relatively in line with inflation, given the state's modest economic growth prospects.”

Vermont’s new AA-plus Fitch rating is in line with Moody’s, which downgraded the state’s GO bonds from Aaa in October also stemming largely from demographic headwinds. S&P Ratings also rates Vermont’s debt at AA-plus. All have stable outlooks.

Kim noted that Vermont’s population is largely unchanged since the turn of the century in contrast to slow and steady growth seen at the national level. Vermont began to see a decline in population starting in 2012 with those dips leveling off during the past two years aided in part by the state’s efforts to attract new residents and businesses, including a grant program for remote workers who relocated there.

“Given Vermont's small population of 626,299 as of July 2018 (second lowest amongst the states), even minor shifts in migration trends could again lead to population and workforce declines,” Kim said. “As with several other New England states, high educational attainment levels provide some potential for economic gains, but Vermont has not fully benefited from that potential to date.”

Vermont is planning to use proceeds from the series A bonds to finance various capital projects throughout the state, according to a July 11 Moody's report. The series B bonds will refinance outstanding GOs for anticipated debt service savings.

State Treasurer Beth Pearce and Gov. Phil Scott issued a joint statement about the Fitch downgrade noting that despite facing demographic challenges, Vermont was also credited with having sound reserves and for taking modest steps to reduce pension liabilities. Pearce and Scott stressed that the state plans to continue advancing measures that can tackle population challenges

“The fact that population declines have leveled off in the past two years is encouraging, but it is clear we have more to do to make Vermont more affordable for families and businesses and to revitalize our economic centers throughout the State,” Pearce and Scott said in their joint statement. “To ensure a strong future, the Treasurer’s Office and the Governor stand ready to partner with the General Assembly, and other State and local officials to continue progress and reverse our demographic trajectory.”

Fitch also gave a one notch downgrade to the Vermont Municipal Bond Bank's 1988 General Resolution bonds to AA-minus from AA.

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