OSCAR - OSC Activity Report
Office of the State Controller
Robert L. Powell, State
Controller
Winter Quarter 2007
Moody's upgrades North Carolina to Aaa
Moody's Investors Service upgraded the State of North Carolina's general obligation bonds to Aaa from Aa1 on January
12, and changed the rating outlook to stable from positive. The upgrade reflects the State's strong financial performance,
replenishment of depleted reserves, recent economic gains that surpass national averages, and the State’s effective fiscal
management and healthy financial outlook, Moody's said in a press release.
Moody's cited the strong turn-around in General Fund balances, healthy economic growth and North Carolina 's history of
strong financial management. It listed challenges for the State including financing secondary education needs, rising debt
levels and reserve levels that are below historic peaks.
"This is a welcome step forward for North Carolina , which again becomes one of the few states in the nation with a Aaa
rating from all the bond rating houses," said State Controller Robert Powell. "A lot of people in the executive and
legislative branches of government worked very diligently over the last several years to get this top rating restored. And it
certainly will benefit taxpayers with favorable interest rates as we move forward to improve North Carolina 's
infrastructure."
In recent years, North Carolina experienced an unusual confluence of financial challenges that resulted in major one-time
expenditures and lost revenue , Moody’s analysts said. The early 2000s was a period of severe strain for the State as it
suffered a series of adverse economic and fiscal events including costly legal judgments, hurricanes and floods, and
revenue loss resulting from the national economic recession. In addition, the State experienced revenue erosion from
sizable multi-year tax reductions, while spending pressures were rising.
To address its financial challenges, the State drew down its Rainy Day Fund (RDF), and unreserved general fund
balances were drawn down steadily from positive $445 million in 1998, to negative balances in 2000 through 2005. As the
result of conservative budgeting, tight expenditure controls, and an improving economy the State's financial performance
has made strong gains in recent years. Tax revenues exceeded budget forecast by 6.5% in fiscal 2006, and were 13.2%
over fiscal 2005 revenues, resulting in a $940 million revenue surplus. Corporate income tax collections were 33% above
the budgeted forecast.
In addition, the RDF has been replenished: $322 million was transferred into the fund, bringing the balance to $634.6
million at the end of the year. With other reserves including $142 million in the Disaster Relief Reserve and $222 million in
the Repairs and Renovations Reserve, available reserves rose to a healthy 5.7% of tax revenues. Despite its recent
financial strain, North Carolina 's liquidity position remains solid without the need to resort to borrowing for cash flow
purposes.
Another indication of the State's improving financial position is its plan to reimburse the Flighway Trust Fund for amounts
that were transferred during the State’s recent period of fiscal challenge during the recession, Moody’s said. The amended
http://www.ncosc.net/Newsletter/OSCAR_Winter2007.htmK10/13/2009 9:11:58 AM]
