DALLAS — Standard & Poor's revised its outlook on New Mexico's AA-plus general obligation debt to negative from stable, citing falling oil prices, accounting problems, and the state's dependence on federal funding.
"We base our outlook revision to negative on New Mexico's relatively weak economic recovery after the recession with some dependence on government and energy sectors that, particularly with depressed energy prices, could dampen future economic growth," analyst Sussan Corson wrote Nov. 26.
The outlook also reflects recent findings in the state's audited comprehensive annual financial report that highlight weak centralized cash management and accounting processes that create some uncertainty surrounding the state's consolidated financial position, Corson said.
"We understand New Mexico is in the process of analyzing historical transactions before Feb. 2013 as part of its cash management remediation initiative and that officials expect full implementation of new software that will automate the compilation of information into the state's financial accounting system by the end of fiscal 2015," she wrote.
New Mexico has already set aside $101 million of its general fund balance as a contingency for uncertainty about the cash management remediation effort.
"Should the state correct its processes in the next two years to provide confirmed reserve and cash balance levels in line with current estimates, we could revise the outlook back to stable," Corson wrote. "However, should material weaknesses in internal controls persist or if New Mexico were to significantly restate its reserve or cash position below historically good levels, we could lower the rating."
The rating action comes as New Mexico prepares to issue about $85 million of state transportation refunding revenue bonds. The sale is expected Dec. 9.
Moody's rates the $66.3 million senior-lien issue Aa1 and the $18.3 million subordinate lien Aa2. Moody's outlook is stable on this issue.
After this deal, the state will have $849 million of senior lien transportation revenue bonds outstanding, all rated Aa1, and $586 million of subordinate lien bonds outstanding, according to Moody's.