Delaware keeps AAA bond rating in review
WILMINGTON – In yet another sign that the state’s coffers are holding up just fine despite the global COVID-19 pandemic, Delaware once again received the highest possible bond ratings from three agencies ahead of its April 14 sale.
The latest round of rating reviews from Fitch, Moody’s and S&P Global Ratings were largely expected, considering the agencies maintained the perfect ratings through last summer’s much more uncertain period. Since then, Delaware’s fiscal analysts have steadily improved their projections for revenue flows in the current and upcoming fiscal years.
The state intends to bid $293.1 million in general obligation bonds this month, which includes $63.1 million that will essentially refinance bonds from 2013, as it does annually to fund its capital improvement program and to achieve savings on previous debt.
The ratings are important because higher grades translate into lower interest costs in repayment of the bonds. The agencies look at a variety of criteria, including a state’s economy, government’s financial performance and management, debt load, long-term costs and political structure. States that analysts believe could better weather recessions or economic downturns are in turn seen as safer risks and awarded higher ratings.
“I want to thank state employees and the General Assembly,” Gov. John Carney said in a statement announcing the ratings. “Our commitment to responsibly managing the state’s spending has provided the financial resilience needed for Delaware to weather the COVID emergency. The continuing strong support of our President and Congressional delegation combined with the resiliency of all Delawareans and our business community will ensure we emerge from this pandemic stronger than ever.”
All three rating reports note the importance of the state’s conservative budget practices, the maintenance of financial reserves, and a proactive approach to tracking and forecasting revenues and expenditures throughout the year. Delaware also benefits from continued business growth, especially in financial services, life sciences and distribution, as well as comparatively lower costs of business and living than neighboring states.
While all three agencies were largely supportive of the state’s performance and outlook, they also all noted that Delaware’s unfunded pensions and other post-employment benefits (OPEB) were the biggest threat to its pristine ratings.
“Delaware’s unfunded OPEB liabilities have grown significantly, despite the implementation of various reforms over the past two decades. As of fiscal 2020, the state’s $9.4 billion share of the net OPEB liability is among the largest in the nation on a per capita basis, at $9,486,” the analysts at S&P wrote. “In our view, inaction in addressing Delaware’s elevated retiree health care liabilities over our outlook horizon could affect the state’s credit quality.”
In 2019, Carney signed Executive Order 32 to reestablish a committee to study OPEB costs in Delaware and identify potential actions. The Retirement Benefit Study Committee met five times in 2019 and 2020 but hasn’t met since the pandemic began.
According to meeting materials from March 2020, the committee is studying a range of options, from reducing eligibility or benefits of plans to freezing new beneficiaries, setting subsidy caps to ending benefits altogether.
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