Credit rating agencies give ‘stable’ rating to Alabama’s bonds before sale

General obligation bonds to be sold soon by the state of Alabama to fund improvements to the Alabama Department of Conservation and Natural Resources, the Alabama Historical Commission, and the Alabama Forestry Commission were given stable investment ratings by Fitch Ratings and Moody's Investor Services recently.

Amendment 1, approved by Alabama voters on May 24 by a 77-to-23% margin, authorized the state to issue up to $85 million in bonds.

$80 million of the bonds will be used to "improve, renovate, equip, acquire, provide, construct and maintain state parks under the Alabama Department of Conservation and Natural Resources." $5 million will be used to "improve, renovate, equip, acquire, provide, construct and maintain public historical sites and public historical parks under the Alabama Historical Commission." The Alabama Historical Commission cannot use any of the funding at the Confederate Memorial Park in Marbury, Alabama. If bond proceeds happen to exceed $85 million, remaining funds will be allocated to the Alabama Forestry Commission for capital improvements and maintenance of state forests.

The state of Alabama's sale of these general obligation bonds is expected to occur on Wednesday, October 26, according to the two credit rating agencies. Fitch gave the bonds an AA+ rating. Moody's gave the bonds an Aa1 rating.

According to Moody's, their rating for the state of Alabama's general obligation bonds "reflects the expectation that the state has the capacity to sustain structural balance in a period of economic stability or to withstand a moderate shock to revenue in a period of economic weakness."

Fitch Ratings noted Alabama's current "fiscal 2023 budgets for both the Education Trust Fund and the general fund include significant spending increases that the state considers to be sustainable even in anticipation of revenue growth returning to a more normal, slower trajectory."

"The $8.6 billion fiscal 2023 ETF budget provided increases for both higher and K-12 education, including sizeable pay raises for teachers and a one-time bonus for retirees, expansion of pre-K and literacy programs, and incentives for math and science education," Fitch notes. "The general fund budget at $2.74 billion incorporates a 4% pay increase for state employees, a one-time bonus for retirees, and funding increases for most state agencies, including a 3.4% increase for the department of corrections."

According to a cost estimate completed in April 2021, the $85 million in debt from Amendment 1 will increase the state's debt service payments by $6 million annually over a 20-year period for an estimated total of $120 million beginning in the current fiscal year.

Spokespersons for the Department of Finance and Department of Conservation and Natural Resources didn't return requests for comment by 1819 News on Friday.

According to Alabama Daily News, the first projects to be bid on and funded with proceeds from the bond sale are: