Copyright © 2020 Albuquerque Journal
SANTA FE – Despite a sharp decline in New Mexico revenue levels due to the coronavirus pandemic and falling oil prices, the state’s bond rating is holding steady.
Two national credit rating agencies said this week they were not downgrading the state’s bond ratings, while keeping the state’s rating outlook at “stable.”
That’s significant because a credit rating downgrade can lead to higher borrowing costs for infrastructure projects.
“These ratings are a positive sign to investors that New Mexico bonds remain strong despite the current economic landscape,” acting state Finance and Administration Secretary Debbie Romero said. “We are actively navigating the financial fallout of the pandemic and global oil industry decline, and the ratings show we are moving in the right direction.”
Previously, New Mexico’s credit rating was downgraded twice in a two-year period leading up to 2019, due to lingering pension concerns and high Medicaid enrollment, among other factors.
In the current budget year, New Mexico revenue levels are expected to end up being between $500 million to $1.4 billion less that last year’s levels, due to the double whammy of a pandemic-related economic slowdown and a steep drop in oil prices.
However, the state’s cash reserves could be larger than previously projected as construction activity and better-than-expected consumer spending boosted state gross receipts tax collections during the first half of 2020.
Moody’s Investor Service, one of the two credit rating agencies, cited the state’s ample cash reserves and conservative approach to financing outstanding bonds as reasons for keeping its AA2 bond rating intact.
But Moody’s also said in a rating review earlier this year that New Mexico faces fundamental challenges, including low income levels, high pension liabilities and a relative lack of economic diversity. The other credit rating agency not downgrading the state’s bond ratings is S&P Global Ratings.
Due in part to high revenue volatility levels, New Mexico budget officials last year began using “stress testing” to determine appropriate cash reserve levels, instead of setting arbitrary target levels.