Nevada sees outlook boost ahead of GO sale

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Nevada will take a positive S&P Global Ratings outlook into its next general obligation bond sale.

S&P Thursday revised its outlook on Nevada's AA rating to positive from stable. It also affirmed its AA-minus rating on the state’s appropriation-backed certificates of participation.

Nevada will sell $56.6 million of series 2018A GO limited tax capital improvement, historic preservation and refunding bonds, according to Moody's Investors Service, which assigned its Aa2 rating and stable outlook ahead of the sale. The state holds an AA-plus rating with a stable outlook from Fitch Ratings.

"The positive outlook reflects our expectation that Nevada will maintain its proactive budget management as it did during the extreme economic downturn during the Great Recession," said S&P analyst Ladunni Okolo, "along with our expectation that the state will continue to build its reserves during the economic expansion to mitigate future revenue volatility."

Proceeds from the Series 2018A bonds will be used to finance the construction of a new Department of Motor Vehicles service center, a new engineering building at the University of Nevada, Reno, as well as other statewide capital improvement and historical preservation projects, according to Moody's.

S&P cautioned that the state economy remains concentrated in tourism and gambling making it particularly susceptible to significant revenue declines in the event of a deep recession.

Its strategy of building reserves brought them from about 7% in fiscal 2011 to a projected 14% at the end of fiscal 2018, S&P said.

If the state continues its reserve plans, S&P said, it should be able to absorb budget pressures that may result from shocks due to its cyclical economy.

The state also has good constitutional protections, which require balanced budgets and give tax preference to debt service and a commitment to maintaining positive ending balances equal to a minimum of 5% on a budgetary basis. It also has low total debt relative to the state’s economy and a low debt burden as a portion of Nevada’s budget.

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Ratings General obligation bonds State of Nevada Nevada