< }}” alt=”texas-aaa.png” width=”250″ />What does it take to make it as an independent nation?
Besides the passion and commitment of a free people committed to self-determination, a lot of things certainly help – a diverse, high-tech economy, proven and immense energy reserves, a well-educated and politically engaged population, sturdy and reliable links to other countries such as road and railways, seaports, and airports, strong independent institutions such as respected and impartial courts, and of course, having the best possible credit rating.
As the Texas Comptroller of Public Accounts notes, Texas currently has AAA credit ratings from Moody’s, Fitch, Standard & Poor’s, and Kroll, making Texas the first and only state with AAA credit ratings from all four ratings agencies. Kroll’s AAA rating is defined as “Determined to have almost no risk of loss due to credit-related events. Assigned only to the very highest quality obligors and obligations able to survive extremely challenging economic events.”
So what does an excellent credit rating mean for Texas?
Generally speaking, a higher credit rating indicates lower interest costs on the general obligation bonds states sometimes sell to investors in order to finance large-scale undertakings (e.g., road construction and other public works projects). This, in turn, results in lower interest costs, thereby lowering the cost to taxpayers. If a state receives a lower ranking, or its credit rating is downgraded, the cost of borrowing money goes up, which can negatively affect a state’s budget and economic growth.
Thus Texas is able to take on “good debt” to cheaply finance massive infrastructure and educational projects that keep our state at the very cutting edge. Responsibly taking care of our finances at the state level like we do at the household level has reduced our taxes and increased the efficiency of our spending to be in the best possible spot in this regard.
Why does Texas have such an excellent credit rating?
While every state except Vermont has a ‘balanced budget’ requirement, clearly Texas is taking that more seriously than others – A case in point is the Texas “rainy day fund”, basically a savings account of over $8 billion, stashed away for the most severe of emergencies. Add to this a long record of sustained and timely bond repayments, excellent economic outlook, reasonable and broad taxation policies, and a dash of not relying on oil & gas proceeds nearly as much as you’d expect Texas to do, and that’s the recipe for a great credit rating.
Kroll doesn’t have credit ratings for all fifty states yet, so this reality may change in the near future as they complete additional state credit rating audits. So how rare is a AAA rating from other agencies? Under Standard & Poor’s, Texas is one of only fifteen states with a AAA rating, and this is similar for the other ratings agencies – all other states with AAA ratings are significantly smaller in terms of population and GDP than Texas, with the notable exception of Florida. In fact, other states with comparable population and GDP, such as California and Illinois, have among the very worst of state credit ratings, while even the Empire State and the home of Wall Street, New York, has an average credit rating at just AA.
No doubt Texas will sustain and strengthen our financial responsibility as an independent nation, and keeping our taxes lower and government outcomes better because of it.