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 for 75 years, 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 7 other states, including Maryland and North Carolina. Tennessee ranks 12th.
Bond Ratings by National Rank
|Source: JLARC, "Virginia Compared to the Other States" (January 2013), "Bond Ratings" (22).|
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.
State rankings are ordered so that #1 is understood to be the best.
Data Definitions and Sources
Virginia General Assembly, Joint Legislative Audit and Review Commission (JLARC) "Virginia Compared to Other States" (January 2013), "Bond Ratings" (22). jlarc.virginia.gov/reports/Rpt438.pdf
See the Data Sources and Updates Calendar for a detailed list of the data resources used for indicator measures on Virginia Performs.