DALLAS Standard & Poor’s and Moody’s Investors Service both revised their outlook for Arizona to positive from stable Nov. 26.
Standard & Poor’s affirmed Arizona’s AA-minus issuer rating and its A-plus certificates of participation rating.
Moody’s affirmed equivalent Aa3 issuer and A1 COP ratings. The actions come ahead of the planned sale of about $80 million of refunding COPs, according to Moody’s.
“The positive outlook reflects recent strong economic trends and the expectation of continued growth in the near term, combined with improvement in the state's liquidity and General Fund balances,” Moody’s wrote.
Standard & Poor’s said the positive revision is based on Arizona’s improved budget stabilization fund balances and limited debt and debt issuance plans.
The state’s economy is diverse, the analysis said, and population growth remains strong despite a recent slowdown. The housing market is healthy again after a severe downtown during the past few years, Standard & Poor’s said.
“We expect that the state economy and housing market will continue to show signs of improvement,” the analysis said.
The improved outlook indicates there is at least a one-in-three chance that Arizona’s issuer credit rating could be raised one notch within the next two years, Standard & Poor’s said.
“An upgrade could occur if the state retains or adds to its budget stabilization balance in the next two years, and moves toward structural balance, even if it draws down its general fund balance as planned,” the analysis said.
An upgrade in the credit rating will depend on how well Arizona manages the revenue drop from the demise of a temporary sales tax that ended in July 2013. Standard & Poor’s said. The state also faces the possibility of significant court-ordered back payments to redress previous under-funding of local education.