Posted on Sun, Aug. 20, 2006

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S.C. works to regain top credit rating

‘We have done literally everything we’ve been asked to do,’ Harrell says

By JOHN O’CONNOR

johnoconnor@thestate.com

South Carolina leaders are making a renewed push to restore the state’s credit rating to the top tier.

The push comes a year after a sluggish economy and questionable bookkeeping caused one credit-rating agency to lower the state’s creditworthiness a peg from its highest level.

Since then, South Carolina has paid off lingering debts, criticized by the Standard & Poor’s firm, and stocked more money into its savings reserves. Recent economic news and tax revenues also point toward a growing state economy, though the jobless rate — at 6.2 percent — remains the fifth-highest in the nation.

“I think we have a compelling case to be made,” said House Speaker Bobby Harrell, R-Charleston. “We have done literally everything we’ve been asked to do.”

A top credit rating is important because it signals to businesses and investors that South Carolina is stable financially. Credit ratings also affect how much lenders charge states to borrow money.

The downgrading by Standard & Poor’s has not cost the state money, as South Carolina is still top-rated by other bond agencies. But the drop could influence other agencies’ credit ratings, and state leaders want to nip the slip in the bud.

State Treasurer Grady Patterson said he will tout the state’s progress when he meets with bond-rating firms this fall. Others — including Gov. Mark Sanford and Thomas Ravenel, the Republican nominee for state treasurer — believe the state should be more vocal.

Standard & Poor’s has not set a timetable to decide whether the state’s credit rating could change or when it will issue a new credit report, said analyst Eden Perry. Bond-rating firms typically are tight-lipped about when they might issue a decision.

South Carolina does have a history of reviving its finances.

In 1996, South Carolina was the first state in the country to restore a lost AAA credit rating, also by Standard & Poor’s. Standard & Poor’s downgraded the state in 1993.

Some say restoring the AAA rating could be more difficult this time.

“They’re more wary of us now,” said Comptroller General Richard Eckstrom, who as treasurer in 1994 organized a meeting among state leaders and bond firms that led to the restored credit rating. “I think S&P feels like they got burned.”

MAKING A CASE

Standard & Poor’s downgraded the state to AA+ from AAA, its highest rating, in July 2005. It cited “the state’s structurally weaker economic position” compared with other AAA-rated states.

South Carolina retains the highest credit rating awarded by two other agencies, Moody’s Investor Service and Fitch Ratings.

With prodding from Sanford, who took office in 2003, lawmakers have in the past year:

• Paid off a $105 million debt created through accounting changes

• Repaid $174 million borrowed from a handful of state trust funds when the economy soured five years ago

• Fully funded two state reserve accounts, a total of $250 million, and created a third that has a $171 million balance, thanks to now-surging tax collections

Lawmakers previously had changed state rules to require long-term budget projections, something S&P cited as a positive.

In last year’s credit report, Standard & Poor’s cited the state’s relatively low debt, $599 per S.C. resident, as a strength. In a press release last week, Eckstrom estimated state debt at $549 per resident — a total of $2.3 billion, not including higher education bonds.

Though the state has taken some good steps, Eckstrom is concerned about its rising debt. Since the beginning of 1999, state government debt has grown from $243 per resident.

A POLITICAL ISSUE

With November elections approaching, the state’s credit score has become a campaign talking point for candidates for governor, comptroller general and treasurer.

Republican treasurer nominee Thomas Ravenel plans to visit the three New York credit firms in the next month to discuss how the state could restore the AAA rating. He is still working on setting up a meeting.

Ravenel said State Treasurer Patterson has not kept state leaders involved with the rating agencies.

“It’s clear the communication between the rating agencies and the state has not been good,” Ravenel said, adding he believes the state can restore the AAA rating.

Patterson said efforts by elected officials or candidates to influence the rating agencies might be counter-productive.

“It’s unusual for the state not to speak with one voice,” he said. “Our finances are in the strongest condition they have been in the last three years. Unfortunately, the economy has not kept up.”

Meanwhile, the state will wait to hear from S&P.

“They’re like a court,” Patterson said. “You can’t get a decision out of a court before the case is tried.”

Harrell said the state has done what it could do satisfy credit agencies. “I gave up guessing what the rating agencies will do a long time ago,” he said.

Reach O’Connor at (803) 771-8358.