North Dakota, in a Bubble of Its Own, Rises to AA-Plus

CHICAGO — North Dakota this week was rewarded for its strong fiscal position and relative isolation from the national economic downturn when Standard & Poor’s upgraded its issuer credit rating to AA-plus from AA. 

Analysts praised the state’s history of strong financial management and ability to maintain budget surpluses. “North Dakota’s stability throughout economic cycles has long been a positive credit factor, but evidence of the state’s strength has grown more apparent during the current recession,” analysts said in a release on the rating action.

Standard & Poor’s also raised its standard long-term rating and underlying rating on the North Dakota Public Finance Authority’s moral-obligation-backed debt to A-plus from A. The upgrade came as the authority sold $1.5 million in industrial development program bonds Wednesday. The North Dakota Building Authority, which issues state appropriation debt, was upgraded to AA from AA-minus, as was the state’s water commission debt, said analyst Jane Hudson Ridley.

The rating actions affect a total of $250 million in outstanding debt.

While strong oil prices have driven much of the state’s financial health, North Dakota is also considered a stable state largely immune to the economy’s ups and downs. For example, it has escaped much of the housing market’s current crash largely because it avoided the bubble enjoyed by other states over the past 10 years.

Credit analysts have cited three key economic factors for North Dakota’s fiscal success: a boom in oil production — which extends beyond increased oil tax revenue into employment and income tax collections — as well as a strong agricultural market and a conservative fiscal philosophy.

On the fiscal side, Standard & Poor’s praised the state for its ample reserves and growing unreserved general fund balance as well as low debt levels and rapid debt amortization.

North Dakota has no general obligation or state-wide, tax-supported revenue debt, which is also considered a key credit strength.

While other states have suffered steep drops in revenue estimates, North Dakota’s recent revenue figures show that general fund revenues are holding steady at least through 2009, while oil tax revenues are declining somewhat. Republican Gov. John Hoeven recently crafted a $7.7 billion 2009-2010 budget that featured a $1.2 billion surplus. Under the revised forecast, the state would now maintain reserves of just under $1 billion at the end of 2011, according to Hoeven’s office.

“We expect the state’s high reserves to support it through a period of potential economic weakening,” Ridley wrote in a report on the upgrade. “To maintain the rating, the state will need to manage any expenditure or revenue fluctuations that extend beyond modest adjustments in order to preserve what we consider good reserve levels.”

North Dakota is in line to receive roughly $650 million in federal stimulus funds, according to the state’s legislative budget office. Budget analysts told Senate and House appropriations committees this week that about $233 million of that could be used to replace planned state spending increases in order to set aside the state money aside for future budget periods. Some local government officials are opposed to that plan. 

Moody’s Investors Service rates the state Aa2, and Fitch Ratings assigns a AAA rating to the Building Authority debt.

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