The Triple Triple

Bond ratings may seem like the world's dullest blog topic, but bear with me, since this is a critical part of Georgia policymaking.

Like nearly every other state government, but unlike the federal government, the Georgia government must maintain a balanced budget. That means spending cannot exceed revenue. For capital outlay projects like infrastructure and new school buildings, however, states may issue bonds. This allows states to fund big ticket projects like infrastructure and new school buildings over the life of the bond, typically five or 20 years.

The three main bond raters, Moody’s, Fitch, and Standard & Poor’s, all gave Georgia's general oblication (GO) bonds the best rating, AAA. This makes Georgia one of only seven states with the "Triple Triple" designation. Our state-issued bonds are deemed safest from risk of default, which means we can sell bonds at a low interest rate, so we pay millions less in debt service.

Most states have the next best AA bond rating, while California's notorious fiscal situation has stuck them with BBB. The rating method is based on debt structure (e.g. the amount of debt relative to yearly revenue), economic conditions, and management and administration practices.

Why don't all states adopt the necessary practices to earn a AAA rating to score lower interest rates? Legislators often choose to finance a lot of project with bonds rather than with yearly revenue, because by paying later rather than now, they can avoid raising taxes on current constituents. Plenty of interest groups encourage legislators to undertake big spending projects which require issuing debt.

Georgia takes pride in its history of conservative debt management that has kept up the Triple Triple. In Gov. Perdue's words,

Our strong bond ratings and sound fiscal management have allowed us to achieve significant budget savings that will continue to benefit Georgia for years to come.

Legislators at the Joint Budget Hearings on January 15 drilled Director Susan Hart-Ridley of the Georgia State Financing and Investment Commission with questions and concerns about the state's potential to fall to AA ratings given this year's financial troubles. While she could not make them any guarantees, she seemed confident that continued top ratings were likely.