Moody’s Considers Upgrading New Mexico’s Bond Rating for the First Time in Over a Decade
By Ashley Leach, Director, Board of Finance
Moody’s, one of the state’s bond rating agencies, recently released its Credit Opinion Report. The report cited New Mexico’s robust general fund reserves and pension funding initiatives as key factors in improving the outlook on the state’s issuer and general obligation bond ratings from stable to positive. This upgrade consideration reflects how strong the state is financially doing. An update to all our bond outlooks and ratings would be a first in over a decade.
Moody’s Report
In the report, Moody’s stated, “The State of New Mexico’s (Aa2 positive) already strong credit metrics are likely to improve as the state continues to maintain healthy operating reserves and forecasts further growth in its sizable permanent fund balances. On September 20, we revised the outlook to positive, reflecting our view that this improved financial position will outweigh some risks inherent in its economy, which is concentrated in oil, gas, and government employment.”
If New Mexico continues its current fiscal trajectory, Moody’s expects to upgrade the state’s issuer, general obligation, and severance tax bond ratings soon.
DFA Secretary Wayne Propst commented on the potential upgrade, stating, “Moody’s improved bond rating outlook reflects the administration’s strong fiscal governance. This includes reducing long-term debt issuance, maintaining operating reserve balances above 30%, stabilizing pension liabilities, and committing to responsible debt management while increasing permanent fund balances to secure the state’s future.”
Although recent changes to Moody’s bond rating methodology changed the ratings for New Mexico’s severance tax and transportation bonds, the state anticipates these ratings will return to previous levels by the time new bonds are issued.
What this means for New Mexicans
In short, the state is doing well financially, and it’s showing in different areas. We continue to invest in programs for New Mexicans while still maintaining high reserves. We continue to yield substantial revenue from investment savings funds, which will surpass oil and gas tax revenues in the next decade. And now the bond market is taking notice of our practices. Because of our strong financial standing, we have no plans to issue long-term severance tax bonds in the near future. The state has shifted from borrowing for most of the capital needs to funding capital with cash instead. Should we need to issue bonds, the potential rating upgrade will benefit New Mexico.