Government and Citizens

Bond Rating

Bond Rating

A state's bond rating influences how much taxpayer money the state can save by securing competitive loans; it also serves as a measure of a state's financial and administrative status. Virginia's AAA bond rating, the best rating possible, is a reflection of the confidence placed in the Commonwealth's fiscal health.

Why is This Important?

Virginia's bond rating allows it to borrow money at the most competitive rates available. Having a good credit rating means Virginia can save millions of taxpayer dollars in interest payments when it finances debt, such as borrowing for construction costs. With less interest to pay, Virginia's resources can be used where needed, and the state can maintain its favorable tax rates for citizens and industries.

Bond ratings are also a measure of a state's financial reputation. Finance professionals conduct a rigorous examination of a state's fiscal management practices over a significant period of time and express their level of confidence in that state’s ability to safely meet its scheduled interest and principal repayments. A bond rating of AAA is highest (best), and D is lowest (worst). A high bond rating makes the state's bonds more attractive to investors.

Note: A bond is an investment instrument through which an investor loans money to a public or private entity in return for earning interest. Typically, the interest a bond issuer must pay the purchaser is higher when the risk that the issuer will not be able to repay the loan is greater. Three major rating firms conduct research and set a rating based on their assessment of the risk that the loan will not be repaid as scheduled. This rating then influences the amount of interest the bond issuer must pay the investor. 

How is Virginia Doing?

Virginia excels in its bond rating and has held its AAA bond rating since 1938, longer than any other state. Financial professionals place a high degree of confidence in how Virginia manages its finances. Virginia shares first place ranking with 13 other states, including peer states Maryland, North Carolina, and Tennessee.

Bond Ratings by National Rank

Rank	State	S&P	Moody's	Fitch
1	Virginia	AAA	Aaa	AAA
1	Delaware	AAA	Aaa	AAA
1	Georgia	AAA	Aaa	AAA
1	Indiana *	AAA	Aaa	AAA
1	Iowa*	AAA	Aaa	AAA
1	Maryland	AAA	Aaa	AAA
1	Missouri	AAA	Aaa	AAA
1	North Carolina	AAA	Aaa	AAA
1	South Dakota *	AAA	Aaa	AAA
1	Tennessee	AAA	Aaa	AAA
1	Texas	AAA	Aaa	AAA
1	Utah	AAA	Aaa	AAA
1	Nebraska *	AAA	--	--
1	Wyoming *	AAA	--	--
15	Florida	AAA	Aa1	AAA
Source: JLARC, "Virginia Compared to the Other States" (2017), "Bond Ratings" (22). * States with no outstanding general obligation debt. Shown are the rates these states would likely receive were they to issue bonds.

What Influences a Bond Rating?

A variety of factors can influence a bond rating, including:

• The amount of debt a state holds in relation to the size and health of its overall economy.
• A state's long-term financial management practices, including whether it meets its interest and principal repayments on time and has a back-up plan to make sure it can meet its obligations.
• Changing economic conditions that result in lower state revenues.
• Inaccurate forecasting that fails to anticipate revenue shortfalls.

What is the State's Role?

Virginia's bond rating is the responsibility of its governmental leadership. The executive and legislative branches must cooperate to ensure that Virginia's practices are sound by:

• Planning strategically.
• Independently studying problem areas and recommending sound improvement strategies.
• Accurately forecasting expenditures and revenues.
• Borrowing prudently.
• Objectively monitoring fiscal processes and procedures.