DALLAS-- South Dakota can now claim three top-level credit ratings.
On Monday, Moody's Investors Service assigned an initial issuer credit rating of Aaa to South Dakota.
State officials sought the rating to highlight its credit strength.
"Upgrades signify the financial strength of a state," Gov. Dennis Daugaard said in a statement Monday. "Now it is clear we have the best ratings possible and that high distinction will help economic development efforts in South Dakota."
The rating agency based the top possible rating on South Dakota's high levels of reserves, low fixed costs and stable revenue and economy.
The upgrade doesn't directly impact any debt.
Due to a constitutional prohibition on debt, South Dakota bonds are issued through authorities, secured by lease appropriations made by the state Legislature. As a result, all bonds are rated one notch below the rating of the state. Moody's had already upgraded the ratings on the state's lease-revenue debt one notch to Aa1 in February. The state lease appropriation bonds are issued through the South Dakota Building Authority and South Dakota Health and Educational Facilities Authority.
"Securing this public issuer rating was the last step in our quest to attain AAA [ratings] from the three major rating agencies," said Daugaard. "We knew that we were rated at the highest level Moody's could rate our bonds, however the public issuer rating was not formalized until now."
In June, Fitch Ratings upgraded South Dakota's issuer default rating by one notch to AAA, citing ample reserve balances and history of maintaining budgetary balance. S&P Global Ratings upgraded the state's issuer rating to AAA in May 2015. Last month, S&P affirmed the AA-plus rating on bonds issued by the state authorities.
A broad-based sales tax is South Dakota's dominant tax revenue source. As of fiscal 2017, when the rate rises to 4.5%, from 4%, about two-thirds of general fund receipts will come from sales taxes.
South Dakota's primary expenditure commitments are for education and health and human services, including Medicaid. Support for K-12 schools is the bulk of education spending, including both direct aid as well as funds for property tax relief. The state's support for schools will rise further beginning in fiscal 2017 with planned teacher salary increases funded from the sales tax rate increase.
The state's budget reserve fund receives unobligated general fund cash and held a balance of $99 million as of May 2016, equal to 6.7% of forecasted fiscal 2016 general fund revenues. Additionally, a general revenue replacement fund is also available to cover year-end revenue shortfalls. Its balance stands at $44 million, equal to 2.9% of general fund revenues.
