Why Idaho's credit rating is AA+

By LT. GOV. BRAD LITTLE

Special to The Press

 For those who weren’t watching, two changes occurred recently which affect the credit worthiness of Idaho and our federal government. For Idaho, there was some very good news: On March 30th, Standard & Poor’s upgraded the state’s bond rating from AA to AA+. Forty-one other states require balanced budgets and 38 disallow debt carry-overs from one fiscal year to the next, so we have to ask ourselves: Why is Idaho so much better off? I would suggest it is because as a conservative state, we are fiscally smart.

At the federal level, just the opposite occurred.  Although Standard & Poor’s didn’t downgrade the U.S. Government’s rating outright, it did reclassify the outlook from stable to negative. There is now a one-in-three chance that over the next two years, the federal rating could be downgraded from its current AAA rating. To put this in perspective, the U.S. Government has never had a rating other than AAA, and its rating has never had a negative outlook.

Standard & Poor’s primary analyst for the state of Idaho cited strong economic growth during the past decade relative to the U.S. as a whole; our state’s practice of building up reserves in the general fund and “rainy day” funds; and our constitutional amendments forbidding long-term general obligation debt as reasons to upgrade Idaho’s long term credit rating. These are all good things.

Consider also that unfunded health insurance liabilities in that plan have dropped from $445 million to less than $83 million over the last few years, due to actions taken by Governor Otter and the legislature. One of the other primary reasons a state’s credit rating gets upgraded or downgraded is the perceived stability of its pension fund, its unfunded health insurance liabilities, and how both are funded. What does this tell us? More fiscally sound decisions have been made by the state of Idaho, with the end result being this upgrade of our state’s bond rating.

As we entered the current recession, our pensions were fully funded, so we will likely be able to maintain a relatively stable financial footing as the uncertainty at the federal level continues. By comparison, Illinois, with an unfunded liability of $54 billion, was only funding its pensions at 54%.

Idaho is also one of only three states that does not use a smoothing process when recognizing gains and losses in pension funds. As a result, losses in Idaho are recognized when they happen rather than being equalized over a period of years. While this sometimes hurts in the short term, ours will be one of the few states to actualize full returns in subsequent years. Illinois on the other hand, with its $54 billion unfunded liability and 54% funded pension, will be seeing reduced returns for years to come.

On April 27, Idaho’s state pensions were 91% funded. The U.S. Government Accountability Office recommends a minimum funding of 80%. However, we can still do better. In 2008 our pension was funded at 93%, and 10 years prior to that, it was funded 110%. The raw numbers spell it out best: in 2008 the state had $10.75 billion in assets, versus $11.53 billion in liabilities. Ideally those numbers would be at least equal, if not reversed.

To reach that goal we as a state need to continue to be fiscally responsible. Sometimes that means cuts that don’t feel good at the time, but Idahoans are a resilient group of people and expect their leaders to make the prudent decisions.