RALEIGH, N.C. — State Treasurer Janet Cowell Tuesday advised legislative budget writers of the critical factors that could affect the state’s “triple A” bond rating.

North Carolina, like many other states, faces serious financial and budgetary pressure caused by the economic recession and market volatility while juggling increased demand for social services, retiree benefits and infrastructure.

The federal stimulus package lessens some of this pressure because it helps stimulate the economy through capital projects and provides money to states for education and health care programs.

States that prudently manage stimulus money and address budget challenges head-on will be highly rated, according to a recent report from Moody’s Investors Services, a key bond-rating agency.

“Typically, no single factor is responsible for a downgrade in the state’s bond rating,” said Treasurer Cowell. “However, a combination of short-term fixes like delaying debt payments, ordering furloughs and rapidly depleting reserve funds will negatively affect the state’s bond rating.”

Moody’s has outlined six variables that factor into a state’s bond rating in an economic recession in their report entitled: Outlook Remains Negative for U.S. States.

·         Revenue Decline – The amount of revenue decline for an individual state will be a significant factor in evaluating the impact of the current environment on the state’s rating as well as the level of reserves that it has maintained to buffer the effects of recession-induced revenue shortfalls.

·         Liquidity Position – States that operate with thin reserves or are dependent on market access for cash could experience not only budgetary deficits but cash deficits as well. States which experience strained cash positions are more exposed to downward rating pressure than states that maintain healthy liquidity positions.

·         Recession-Induced Spending Pressures – All states are expected to experience higher spending pressures driven by rising unemployment and the increased demand for social services. Some states with industry or sector concentration will be more significantly impacted due to severe downturns in those industries or sectors.

·         Deficit Financing – States that rely on borrowing to close budget deficits for multiple years are more exposed to the uncertainties of the credit markets and are therefore at greater credit risk than states that can manage without deficit borrowing or states with very limited deficit borrowing needs.

·         Federal Stimulus – How states effectively manage federal stimulus money and close large projected budget gaps will affect the likelihood of negative rating actions.

·         Management – The willingness to promptly address financial problems as well as the ability to enact solutions without the constraints of state-imposed statutory or constitutional barriers will also be considered as a factor in assessing creditworthiness.