August 15, 2019

Texas Comptroller Glenn Hegar Announces Highest Ratings for Texas Short-Term Notes

(AUSTIN) — Texas repeated its high credit ratings for this year's Texas Tax and Revenue Anticipation Notes (TRAN), which will allow the state to manage its cash-flow needs for fiscal 2020.

"Texas has once again received the highest short-term credit ratings on these one-year notes," Texas Comptroller Glenn Hegar said. "These high ratings, coupled with the maintenance of our AAA long-term ratings, help keep Texas' borrowing costs low and save taxpayer dollars as we manage our cash flow. Our creditworthiness reflects our conservative approach to financial management, an increasingly diverse economy and our broad and rising employment base".

"I would add, however, that issues such as emerging trade tensions, the need to continue to address long-term obligations on the state's balance sheet and increased spending pressures continue to pose potential risks to our future credit. My discussions with the ratings agencies regarding these topics are noted in a number of their reports."

Texas' 2019 TRAN issuance is rated SP-1+ by Standard & Poor's (S&P), F1+ by Fitch Inc., MIG 1 by Moody's Investors Service and K1+ by Kroll Bond Rating Agency.

This year's $8 billion TRAN sale is Aug. 21. These annual, one-year notes are sold to help fund school payments and manage cash flow between the start of the fiscal year and the arrival of tax revenue later in the year.

The ratings come on the heels of Hegar's June certification of House Bill 1, which appropriates $250.7 billion in total spending for the state's budget during the 2020-21 biennium. During the 2019 legislative session, lawmakers took positive steps toward addressing key long-term concerns that Hegar has highlighted, such as teacher pensions and health care, while also increasing funding for education and reforming the property tax system.

Moody's said, "The state's economic fundamentals and reserve position are strong, but balancing the budget competes with the demand for education, transportation and pension funding in the fast-growing state."

Fitch said its rating is "based on (Texas') growth-oriented economy and its ample fiscal flexibility provided both by a conservative approach to financial operations and maintenance of substantial reserve balances."

Kroll said, "The economy of Texas is very strong based on an increasingly broad and diverse employment base, ongoing increases in population and above average growth in gross state product. … the economy has diversified well beyond its past reliance on the oil and gas industry, although this sector remains a significant component of economic activity."

Several agencies also noted potential risks to the state's economy. S&P said, "While Texas' growing prosperity is not likely to abate within the short term … emerging trade tensions could have a pronounced effect on the state."

Kroll said, "Given the state's ongoing economic and population growth, it is (Kroll's) view that it will continue to face pressure to fund necessary infrastructure to keep up with growth, specifically in the areas of education and transportation. This could jeopardize the ability to maintain balanced financial operations."

For more information about the TRAN sale, go to trantexas.com.