Standard & Poor's Ratings Services said it raised its issuer credit rating on South Dakota to AAA from AA-plus.
The outlook is stable.
"The upgrade reflects the state's consistently strong financial position and rainy-day funds, and a historical record of conservative budgeting that has resulted in recurring revenue and expenditure alignment, in combination with a fully funded pension liability and elimination of South Dakota's other postemployment benefits liability," said Standard & Poor's credit analyst Sussan Corson. "The upgrade also incorporates recent legislative and executive measures to formalize aspects of the state's budget planning and monitoring processes, including revenue monitoring with a goal for timely budget adjustments, more robust financial forecasting, statewide capital planning, and limitations on debt."
The improved financial management also includes recent legislative changes to the allocation of budgetary surplus, which has effectively established minimum reserve levels. The stable outlook reflects South Dakota's positive revenue trends, strong gross state product, and personal income growth relative to the nation.
At the same time, Standard & Poor's raised its rating on South Dakota Building Authority's debt outstanding to AA-plus from AA, secured by lease payments from various state agencies subject to annual appropriation by the legislature, and raised its rating on the South Dakota Economic Development Finance Authority's bonds to AA from A-plus based on the state's moral obligation pledge to maintain the program's capital reserve account at the required level, which is equal to the maximum annual debt service on the moral bonds outstanding. The outlook on all ratings is stable.
In addition, Standard & Poor's assigned its AA-plus rating and stable outlook to South Dakota Building Authority's taxable revenue bonds, series 2015A.
The ratings reflect the state's: positive revenue and economic trends, and its historical record of conservative budgeting and structural budgetary balance; long history of strong financial operations and maintenance of a strong level of reserves in two rainy-day funds even through the recession; formalized budget planning and monitoring processes combined with a historical focus on structurally balanced budgets; low levels of debt and other long-term liabilities with a fully funded pension obligation and no OPEB obligation; and expanding and diverse economy that is anchored by agriculture, tourism, and services and which has remained relatively stable historically.
The series 2015A bonds and the lease revenue bonds outstanding are secured by lease payments from various state agencies subject to annual appropriation by the legislature. The series 2015A bonds will be payable from rental payments made under a master lease with the state's Department of Game, Fish, and Parks. The lease agreement does not provide for abatement of rental payments for reasons related to damage or delayed construction of the facilities. The authority intends to use the series 2015A proceeds to fund renovation and improvements to lodge areas at Custer State Park Resort and to fund the production of a film for the park's visitor center.
The stable outlook reflects the state's focus on structural budgetary alignment in light of slow, but improving, economic and revenue trends. Given statutory limitations on debt issuance and the state's demonstrated discipline in funding its actuarially required pension contributions, the rating agency expects continued low debt levels. Although it doesn't expect to change the rating in the next two years, any future increased economic and revenue volatility that is not addressed with structural expenditure adjustments could pressure the rating. Sectorwide risks include the potential for significant reductions in federal funding that currently flows to the state. Standard & Poor's will continue to monitor the federal consolidation efforts and will evaluate their effect on the state's finances and officials' response to these revenue reductions.
