At the start of an international trip to promote the No. 1 state for business and further job creation in Georgia, Governor Brian P. Kemp today announced that S&P Global Ratings reaffirmed its “AAA with a stable outlook” assessment for the state’s credit worthiness:
Because the state did not issue new general obligation bonds for the current fiscal year, the other two main credit rating agencies — FitchRatings and Moody’s Investors Service — did not issue formal reports for Georgia’s bond ratings. The prior year, both agencies gave Georgia the highest possible ratings in their analyses of the state’s credit worthiness.
“Once again Georgia’s responsible, conservative approach to budgeting has allowed our state to receive affirmation of the highest possible bond rating,” said Governor Brian Kemp. “In the face of economic uncertainty on the national level due to bad policies coming out of Washington, D.C., I could not be more proud of our shared focus with the legislature on careful budgeting and maintaining a strong economic development pipeline that keeps Georgia a safe bet for any and all job creators.”
S&P cited the strength of Georgia’s economy with a positive employment trend, strong budgetary performance and high reserves levels, a demonstrated willingness to make politically difficult decisions, a balanced approach to primary revenue sources, and consistent funding of obligations as factors contributing to their rating scores.
S&P Global Ratings Report Excerpts
Credit Overview
The ‘AAA’ long-term rating reflects our view of Georgia’s demonstrated resilient budgetary performance across credit cycles, coupled with responsive financial management that have enabled the state to make timely adjustments to general fund expenditures. For a third consecutive year, Georgia generated a multi-billion operating surplus, and it maintains very strong reserve balances at its statutory limit of 15 percent of previous year net revenues. Despite expectations for near-term softening of broader U.S. economic activity and revenue conditions, we believe Georgia will carry this momentum through the end of fiscal 2024 and into fiscal 2025. In addition, the state’s significant flexibility and additional liquidity will help it to navigate potential economic or budgetary disruptions, underpinning our view of its long-term credit stability. The rating also incorporates our view of Georgia favorable population growth trends, and its ability to attract diversified business developments and expansion within its already large and diverse economic base, and our expectation that the state’s annual growth rates will match or outpace that of the nation.
Georgia revised its five-year revenue projections (2024-2028), which in our view, incorporates conservative revenue growth assumptions. Out-year projections reflect the return to a more favorable long-term revenue growth trend of 1.6% in fiscal 2025, 3.5% in fiscal 2026, 4.0% in fiscal 2027, and 4.3% in fiscal 2028. While we view these revenue growth assumptions to be reasonable, and while projected growth in economic activity and revenue performance could offset near-term reductions in certain tax collections, we will continue to monitor long-term revenue effects of tax reductions on revenue predictability and future structural balance.
The ‘AAA’ GO rating reflects our view of Georgia’s:
- Very strong governmental framework, with the authority and a demonstrated willingness to make politically difficult decisions to align expenditures with revenue projections.
- Very strong financial and budgetary management, with well embedded, and likely sustainable processes for monitoring performance and planning for future needs.
- Large and diverse economic base, benefitting from favorable population growth trends that we expect will continue to outperform the nation, paired with robust private sector investments and large-scale infrastructure developments that we believe will position the state for future economic growth.
- Generally strong budgetary performance and high reserves levels at its statutory limit as of June 30, 2023, and our expectation that the state will maintain reserves and liquidity to mitigate potential near-term budgetary pressures. Georgia has maintained a commitment to increasing reserves during good economic times and restoring reserves following draws to manage revenue shortfalls.
- Adequate pension funding discipline and a 75.7% combined pension funding level, which we consider relatively low compared with peers, although this is partly offset by the state’s moderate-to-low debt burden. The state will use available cash to fund capital improvements for fiscal 2025, and when coupled with rapid debt amortization of existing debt, we believe this will likely support stability or modest improvement of the state’s debt metrics over the near-term.
Outlook
The stable outlook incorporates our expectation that Georgia will maintain a commitment to structurally balanced budgeting amid potential near-term softening economic conditions and tax policy changes, and if necessary, make timely adjustments to expenditures over the outlook horizon to maintain its strong financial position. The outlook also reflects our view that Georgia will continue to exhibit favorable economic and demographic growth that exceeds the U.S., further supporting our view of the state’s long-term credit stability.
We could lower the rating if significant financial pressures were to emerge and cause out-year gaps to form, and if potential structural solutions prove insufficient to close the gaps, resulting in a substantial and sustained spend down of reserves and liquidity to levels that no longer is commensurate with peers. Downward pressure could intensify, if, at the same time, we believe that Georgia’s ability to contain long-term liability growth related to pensions and retiree health care costs weakens our view of its debt and liabilities or limits operating flexibility in future budgets.
Debt and Liability Profile
In our view, the state’s debt burden is low to moderate, and we expect its rapid amortization schedule and growth in population and incomes will likely support relatively stable-to-improving debt metrics over the next several years, given the state’s plan to cash-fund its capital improvement plan for fiscal 2025. On a per capita basis, we calculate Georgia’s tax-supported debt to be a moderate $964. At the same time, we view its tax-supported debt to be a low 1.6% of personal income and 1.3% of GSP. We also calculate total tax-supported debt service at a moderate 5.1% of general governmental spending in fiscal 2023.
Read the full report here.