Low growth, high leverage cost Vermont a triple-A rating

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Low economic and population growth mixed with high leverage cost Vermont one of its triple-A ratings.

Moody’s Investors Service downgraded Vermont general obligation bonds to Aa1 Tuesday, citing low growth prospects for the state’s economic base due to aging demographics. The outlook is stable.


The new Moody’s rating is in line with S&P Global Ratings, which rates the Green Mountain State’s debt AA-plus. Fitch Ratings rates Vermont AAA, the highest mark for any New England state.

“The state's leverage, measured by debt and unfunded post-employment obligations relative to GDP, is high among states and especially so among the highest rated states,” said Moody’s analyst Matthew Butler in his report. “With slower than average growth, Vermont's long-term liabilities will weigh more heavily on its economic base and may manifest in growing cost pressures.”

Moody’s concurrently lowered its rating one notch to Aa3 from Aa2 on debt issued by the Vermont Student Assistance Corporation, which is supported by the state's moral obligation pledge.

The Vermont Economic Development Authority and Vermont Educational and Health Buildings Financing Agency also were hit with one-notch downgrades to A1 from Aa3 for bonds they issue backed by annual state appropriations. The Vermont State Intercept Program and Vermont Municipal Bond Bank were also downgraded one notch to Aa2 from Aa1 Tuesday.

“The stable outlook reflects the expectation that Vermont's strengths in governance and financial management will mitigate the impacts of current economic and demographic trends,” said Butler.

Vermont is the second-least-populous state, with an estimated 2017 population of just under 624,000, ahead of only Wyoming. Its 2017 nominal gross domestic product of $32.2 billion is smallest of the 50 U.S. states, according to Moody’s.

Vermont State Treasurer Beth Pearce said in a statement that Moody’s made changes this past April to its rating criteria for accessing a state’s financial health, which made maintaining the Aaa rating more challenging for smaller states.

“We need to work collaboratively to address issues such as Vermont’s aging population, slow economic growth, and above average long-term pension and post retirement liabilities relative to GDP,” said Pearce. “These challenges are real, but they are accompanied by many positive strengths that have been identified by all three rating agencies.”

A budget dispute last spring between Vermont’s Republican governor Phil Scott and legislative Democrats nearly led to a government shutdown before the sides agreed in late June on a compromise $5.8 billion spending plan. The final 2019 fiscal year budget held residential property tax rates steady through the use of one-time funding sources and hiked non-residential property tax rates by 4.5-cents. Legislative Democrats had proposed allocating one-time funds for teacher pension obligations.

"It’s no surprise that Moody’s Investor Services today highlighted Vermont’s aging demographics and the unfunded retirement liabilities that have accrued over the last several decades," said Governor Scott in a statement. "Vermont didn’t get into this situation overnight and getting out is going to take more work. And it is essential that we do this work together on a bipartisan basis, and with the understanding, and sense of urgency, that it is essential to changing the economic trajectory of our state."

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Ratings State budgets State and local finance State of Vermont Vermont Municipal Bond Bank Vermont Student Assistance Corporation Vermont
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