Fiscal Highlights - October 2014

Did you know the State of Utah has a credit score?  Although the state may not be applying for credit cards, Utah finances some projects through bonds. The state is able to borrow at low interest rates because it maintains healthy debt levels, and it has a history of paying down debt quickly. Due to this credit worthiness, Utah enjoys the highest possible credit rating (AAA or triple A) from each of the major rating agencies.

Richard Ellis, Utah State Treasurer, reported two measures of state debt in the May 2014 meeting of the Executive Appropriations Committee. These measures are considered by rating agencies when establishing a state's credit rating.

• General obligation (GO) debt per capita: In the decade prior to the Great Recession that began in 2008, Utah's debt per capita ranged from $421 to $623. During the recession, the state issued bonds to finance large transportation projects and other smaller projects, and GO debt per capita peaked at $1,221 in 2012. Mr. Ellis recommended that the state works to bring debt per capita down to $850.
• Per capita debt / personal income: Over the past 20 years, the ratio of GO dept per capita to personal income has fluctuated between 1.5% and 3.9%, and it is currently at 3.8%. Mr. Ellis recommended that the state works to reduce the ratio to 2.5%.

Another important aspect affecting a state's credit rating is the ability of the state to finance interest and principal payments on its debt through taxation. As taxes are a burden on the citizenry, it is worth considering how the tax burden relates to a state's credit rating.

The chart below depicts each state's May 2014 credit rating from Standard & Poor's and the ratio of total state and local taxes paid by residents to total income as reported by the Tax Foundation for FY 2011 (the foundation's most recent report). Rating categories are depicted from left to right as the best possible rating (AAA) to the lowest rating actually received by any state (A-). Among the 15 states rated triple A, Utah is tied for the fifth highest tax burden at 9.4%, and it is tied for 25th among all 50 states.



The following table provides the number of states receiving each credit rating, along with the average tax burden and standard deviation within the rating category.



From the chart and table above, a general pattern is evident -- on average, the lower the tax burden, the better the credit rating; and the higher the tax burden, the worse the credit rating.

By keeping debt per capita and the ratios of debt to income and tax to income low, Utah should be well-positioned to maintain its triple A credit rating and to continue to receive favorable interest rates when it does borrow.