State Government & Citizen Engagement
A state's bond rating not only determines how much taxpayer money the state can save by securing competitive loans, but is also 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 taxpayers' 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 while the state maintains its favorable tax rates for citizens and industries.
The bond rating is also a measure of a state's financial condition. It means that financial professionals have conducted a rigorous examination of a state's fiscal management practices over a significant period of time. They express their confidence that the state will safely be able to 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 be able to replay 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 70 years, longer than any other state. Financial professionals place a high degree of confidence in how Virginia manages its finances.
|Source: JLARC, "Virginia Compared to the Other States," December 2005|
What Influences a Bond Rating?
A variety of factors can influence a bond rating, including:
- The amount of debt a state holds;
- A state's long-term financial management practices;
- Whether the state meets its interest and principal repayments on time;
- Whether the state has a back-up plan to make sure it can meet its obligations;
- Changing economic conditions that result in lower state revenues; and
- Inaccurate revenue forecasting that results in lower state revenues.
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; and
- Objectively monitoring fiscal processes and procedures.
Data Definitions and Sources
JLARC "Virginia Compared to the Other States," December 2005