WASHINGTON – The number of credit rating upgrades for states last year was nearly double the number of downgrades, according to an annual report released by Standard & Poor's Wednesday.
In its State-By-State Trends in U.S. Public Finance report for 2015, S&P reported 1,105 upgrades and 566 downgrades, which it attributed to varying factors that included economic reasons and housing price growth. Of the 1,671 rating changes, 679 were in California, Texas and Puerto Rico. California had had 338 upgrades and 55 downgrades. Texas had 134 upgrades and 36 downgrades. Puerto Rico had just one upgrade and 115 downgrades.
The overall ratio of upgrades to downgrades was 1.95 to 1, with 21 states surpassing that. California, which led the country with a more than 6-to-1 upgrade-to-downgrade ratio, benefited from strong local economies and finances that were responsible for a combined 239 upgrades in 2015, and a strengthened real estate market, which was the main cause of 50 of the upgrades.
The report found that, "the cause of rating changes in California resembled those of other states, but in a more significant magnitude."
Texas, which had a 3.62-to-1 upgrade-to-downgrade ratio, led the U.S. with a 1.3% percent increase in real state domestic product growth, while Washington saw a 1.1 percent increase and California, with 54 upgrades, saw a 1% increase. Texas, which benefited strongly from economic support, also saw a 3.4% increase in existing home price growth. South Carolina and Michigan saw six upgrades each from economic factors, while North Carolina, New York and Florida each had five upgrades.
S&P reported "mostly isolated" negative rating actions, including in Illinois, which had 52 downgrades to 31 upgrades. The credit rating agency attributed 30 of those downgrades to finances, 11 to liquidity and four to debt service coverage. Chicago and its Board of Education had nine downgrades. S&P attributed the 115 downgrades of Puerto Rico, which is in the midst of a debt and fiscal crisis, to deteriorating liquidity.
Six states had no downgrades: South Dakota, which had 24 upgrades; Oregon with 10 upgrades; Maryland with five upgrades; New Hampshire, which had four upgrades; Delaware, with three upgrades; and Montana, with one upgrade.
"Some states experienced significant upward movement, while others saw more downgrades, and the reasons for the rating changes in 2015 varied," said Larry Witte, senior director for Standard & Poor's Global Fixed Income Research Group.
Looking forward, S&P is forecasting a leveling off of economic and housing price growth for this year, especially in states that had significant upgrades in last year. Five of the nine states that had a high number of rating changes for economic reasons in 2015 are projected to have slower economic growth in 2016.
"These same patterns could repeat in 2016, but changes in the economic environment of certain states could alter the reasons for rating changes and the general trend in rating movement," the report stated. "While these housing markets are expected to remain strong, their positive influence on ratings could be muted."
