S&P: Oregon's Series 2016-I General Obligation Bonds Rated 'AA+' With A Stable Outlook
In addition, S&P Global Ratings affirmed its 'AA+' rating on Oregon's GO debt and its 'AA' rating on the state's appropriation-backed debt outstanding. The outlook is stable.
The rating reflects our view of the state's:Demonstrated willingness to make revenue and expenditure adjustments to correct structural imbalances when they arise;Constitutional and statutory mechanisms to build rainy-day funds and currently strong budget reserve levels;Strong financial policies and practices, including institutionalized quarterly reviews of financial performance and economic forecasts to guide budget assumptions; andRelatively strong pension-funded ratio and other postemployment benefits that represent a low risk, in our opinion. Partly offsetting these strengths are what we consider:Oregon's propensity for revenue volatility given general fund dependence on personal income taxes; andAn active citizen initiative process that can restrict budgetary flexibility, in particular the state's constitutional "kicker" provision, which generates rebates for taxpayers if personal income tax (PIT) revenue growth exceeds state forecasts by 2%.The series 2016 series I bonds are general obligations of the state and are secured by its full faith and credit and taxing power. Oregon's ad valorem taxing power is not pledged to pay the 2016 bonds.
The GO bonds are being issued pursuant to the state constitution, specifically Article XI-P, which allows Oregon to issue GO bonds to fund matching grants for school district capital costs.
"The stable outlook reflects our view that Oregon's finances are poised to remain strong and currently good reserves mitigate potential future revenue cyclicality," said S&P Global Ratings credit analyst Sussan Corson.
While not expected in the near-to-medium term, we could raise the rating if there were less propensity for revenue volatility due to the state's dependence on income taxes and financial markets as well as sustained improvement in demographic and income trends.
Downside credit risk would likely have economic origins and, in particular, could stem from a sustained downturn in the financial markets and the weaker-than-anticipated economies of some of Oregon's international trading partners. Such developments, if they struck when the state already owed taxpayers the kicker-related refund, could strain Oregon's budget alignment.