Texas Comptroller of Public Accounts
FOR IMMEDIATE RELEASE
August 11, 2020
(AUSTIN) — Despite the COVID-19 pandemic’s negative impacts on the broader national economy, Texas has again received the highest credit ratings for its Texas Tax and Revenue Anticipation Notes (TRAN), which will allow the state to manage cash-flow needs for fiscal 2021.
“I am proud that our state once again has received the highest short-term credit ratings on these notes, which will help keep Texas' borrowing costs low and save taxpayer dollars as we manage our cash flow in these unprecedented times,” Texas Comptroller Glenn Hegar said. “In my discussions with the ratings agencies, I noted that the effects of the pandemic, coupled with the significant downturn in energy markets, will continue to challenge our near-term economic and revenue prospects. But our economic fundamentals, conservative fiscal management and attractive business-friendly environment mean Texas remains a solid investment.”
Texas' 2020 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 $7.2 billion TRAN sale is Aug. 19. These annual, one-year notes are sold to help fund school payments and manage cash flow between the Sept. 1 start of the fiscal year and the arrival of tax revenue later in the year.
The ratings come on the heels of Hegar’s July 20 downward revision to the Certification Revenue Estimate (CRE), projecting a fiscal 2021 ending shortfall of $4.58 billion. The shortfall, which Hegar attributed to the pandemic and recent volatility in oil prices, is a decrease from the $2.89 billion positive year-end balance originally projected in the October 2019 CRE.
The ratings agencies’ statements have indicated that Texas’ financial condition puts policymakers in a position to offset the recent strains on the economy.
S&P stated, “Despite the elevated health and safety social risk stemming from the pandemic, which will weaken revenue collections within the short term and could affect the assumptions underlying the cash flow projections, we view them to be in line with [other states]. We view its governance risks as also being in line with [other states] and it has historically maintained a strong management and policy framework to respond to developing risks.
“As the state works through a period of pronounced economic contraction, its successful resuscitation will depend largely on the present policy responses both at national and state levels to help minimize the damage to its longer term economic and credit stability.”
Moody’s commented, “The outlook for the state of Texas is stable. The state's long-term economic fundamentals and its reserve position are strong but reaching structurally balanced budget solutions to the coronavirus-induced revenue downturn will be challenging amid growing demand for education, transportation and pension funding.”
The agencies said Texas’ creditworthiness reflects the state’s conservative approach to financial management, an increasingly diverse economy and broad and rising employment base.
Moody's noted Texas' credit rating reflects the state’s “overall strong credit quality, and adequate balances forecasted to be available to repay the notes when due, including healthy alternate liquidity that the state comptroller can divert to noteholders if necessary,” as well as “the state's strong cash management procedures; and the comptroller's ability to hold back other spending to repay the notes if revenues fall short of estimates.”
Kroll praised Texas’ favorable financial operations and ample cash flow. It also noted Texas’ diversified and fast-growing revenue base, saying, “While price fluctuations in the oil and gas industry will continue to bring a measure of volatility to the state’s revenue base and at times may negatively impact the financial operations of the state, it is Kroll’s view that Texas has the resources and the flexibility, through its high levels of reserves as well as its demonstrated ability to cut spending, to weather fluctuations in the oil and gas markets.”
Fitch said Texas’ rating, “reflects its growth-oriented economy and the ample fiscal flexibility provided both by its conservative approach to financial operations and maintenance of substantial reserve balances. This approach is expected to serve the state well as it confronts the dual, immediate pressures of the coronavirus pandemic and volatility in crude oil markets.”
For more information about the TRAN sale, go to trantexas.com.
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