CHICAGO — Standard & Poor’s boosted the issuer credit rating of South Dakota to AA-plus from AA, citing the state’s strong reserves and low long-term debts.

While not as strong as its oil-booming neighbor North Dakota, South Dakota benefits from a diverse and growing economy anchored by agriculture and tourism.

The state has maintained a stable fiscal position despite the national recession and a recent decrease in sales tax revenue, which fell last year for the first time in decades.

Standard & Poor’s also raised its rating on the South Dakota Building Authority’s lease revenue bonds to AA from AA-minus and the rating on the South Dakota Economic Development Finance Authority’s revenue bonds, backed by the state’s moral obligation pledge, to A-plus from A.

The outlook on all the debt is stable.

“The stable outlook reflects Standard & Poor’s expectation that South Dakota’s economy will remain sufficiently diverse to soften the impact of any future downturn on sales tax revenues,” credit analyst John Kenward wrote in the upgrade report.

“We do not expect the rating to change within the two-year parameter of our outlook as we believe the state’s rainy-day funds will provide adequate financial flexibility until management can make budgetary adjustments,” he said.

Fitch Ratings rates the state’s lease-backed debt AA-minus. Moody’s Investors Service has no underlying rating on the state.

South Dakota does not issue general obligation debt, and the government finances most of its capital projects through lease-backed bonds issued by the Building Authority.

The Building Authority has $115 million of outstanding bonds and the EDFA has $21 million of outstanding debt.

Republican Gov. Dennis Daugaard touted the rating upgrade as proof that the state is on the right path “that will help us out of the recession and lead to business expansion, more jobs, and improved revenues.”

In another plus, the South Dakota Retirement System was 96% funded as of June 2010 and its other-post employment benefits liability totaled $67.1 million as of July 1, 2008.

The state also enjoys the second-lowest unemployment rates in the country — 4.6% as of last January, compared to the national rate of 9% — and is seeing a rebound in sales tax revenue, which dipped in fiscal 2010 for the first time in decades.

Sales tax collections make up the bulk of South Dakota’s general fund revenue as the state has no corporate or individual income tax.

South Dakota maintains two chief reserve funds, the budget reserve and the property tax replacement funds.

The two accounts have totaled $107 million, or 9.3% of general fund expenditures, since fiscal 2008, Standard & Poor’s said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.