South Dakota Receives Highest Rating Possible From Moody’s

On Friday, February 19, we learned Moody’s has upgraded South Dakota’s lease-revenue bond rating to Aa1. This is great news for South Dakota. Aa1 is the highest rating South Dakota can receive from Moody’s. It is equivalent to the AAA rating we received from Standard & Poor’s last spring.

It took persistent effort for our state to earn this upgrade. Lt. Gov. Matt Michels and Jason Dilges, our state’s Chief Financial Officer, met four times with Moody’s officials, in Pierre and in New York, to discuss South Dakota’s rating. Following their first meeting in 2014, we adopted a number of new financial practices. These included annually issuing a debt affordability report, a long-term financial plan and a capital expenditure plan, to accompany the voters’ approval of a balanced budget amendment to our state constitution.

In large part, the upgrade is a result of our budgetary practices. In 2011 we dealt with a structural deficit without raising taxes or spending reserve funds. Each year thereafter, we have continued that stewardship by projecting our revenues and expenses with caution, so if we err, we err on the side of a surplus not a deficit. In 2014, after receiving an unexpected windfall, we used the money to retire bonds early and to pay cash for our new veterans’ home rather than borrowing.

These practices combined with high reserve levels, low debt and zero unfunded pension liability led Moody’s to award South Dakota the highest credit rating.

This upgrade is not just a symbolic victory for South Dakota. There are tangible benefits flowing from an upgrade. Although our constitution prohibits debt, the South Dakota Building Authority and the vocational education program within the South Dakota Health Education Facilities Authority borrow to finance public construction projects like state park improvements and public university dormitories. The upgrades we have received from S&P and Moody’s not only give the financial markets affirmation of our state’s exceptional credit worthiness, but also save substantial amounts in future interest payments. That means our AAA and Aa1 ratings will bring savings for universities, state parks and, ultimately, taxpayers.

As the nation and some states have experienced downgrades, South Dakota’s rating increases are indications that we’re on the right track. We don’t spend money we don’t have. We keep our budget in structural balance. We are frugal and seize opportunities to spend in the short term where it can lead to savings, efficiencies or better government in the long term.

We work hard to keep our state on a firm financial footing, and this is just the latest example of how that stewardship is paying dividends.