Arizona received an upgrade from Moody's Investors Service.
The upgrade to Aa1 from Aa2 “recognizes Arizona’s continued strong economic growth as well as the state’s efforts to balance the budget, reduce debt and boost the Rainy Day Fund to record levels,” Moody’s analyst Kenneth Kurtz wrote. The rating outlook remains stable.
Tuesday’s rating action came four years after Moody’s previous upgrade of Arizona’s issue credit rating to Aa2 from Aa3, covering $2.5 billion of certificates of participation. Arizona, per its constitution, does not issue general obligation debt.
With the upgrade to Arizona's issuer rating, Moody's upgraded its general fund lease-backed certificates of participation, including certificates issued through the Arizona School Facilities Board, to Aa2 from Aa3.
Also upgraded are Arizona Game and Fish Department and Commission Beneficial Interest Certificates, Series 2006, to Aa2 from Aa3.
Moody's affirmed its Aa2 rating on the Phoenix Civic Improvement Corporation's State of Arizona Distribution Revenue Bonds, Series 2005B, for the Civic Plaza expansion project.
The upgrades affect approximately $1.5 billion in outstanding debt.
Since 2015, Arizona has turned a $1 billion deficit into a $1 billion surplus, Gov. Doug Ducey pointed out after the upgrade.
“Today’s rating boost is further validation that Arizona is going in the right direction — and that smart policies do matter,” Ducey said. “Across our state, these policies are making a difference. Jobs are growing. Our budget is balanced. We are paying down debt. Our Rainy Day Fund is the highest it has ever been.”
Moody’s downgraded Arizona's issuer credit rating to Aa3 on July 15, 2010 as Arizona faced a $3.6 billion revenue shortfall that would lead to the sale and leaseback of several state buildings.
Arizona fell to its lowest rating on S&P Global Ratings on Dec. 3, 2009 at AA-minus with a negative outlook. An upgrade on May 20, 2015 returned the rating to AA, where it remains.
Moody’s noted that Arizona “has steadily paid down debt incurred prior to and during the recession, while limiting new borrowing, reducing an already-low debt burden. Other key factors in the Aa1 rating include below average pension liabilities and demonstrated budget discipline."
With a population of about 7 million, Arizona is the 14th largest state in the U.S. Its state gross domestic product of $347 billion, is 21st largest in the nation.
“Income levels are below average, in part attributable to a large retiree population,” Kurtz wrote.
Although Arizona’s housing market has made a strong comeback in the last decade, the Phoenix market has not yet totally recovered, as it is still 8% less valuable than it was at the bubble’s peak, according to the real estate website Zillow.
Arizona’s housing market has gained more than $296 billion throughout its recovery from the Great Recession, making up 2.7% of the overall U.S. recovery gain, Zillow said. metro Phoenix housing market gained over $36 billion in value in 2018.
Rising employment in construction jobs reflect increased residential building, according to economist George Hammond, director of the University of Arizona’s Eller College of Management.
According to revised data from the Census Bureau, Arizona housing permits rose 5.6% last year, with a 14.4% increase in single-family permits offset somewhat by a 16.3% decline in multi-family activity.
