Report: Tapped Rainy May Not Ding State Credit Rating

May 18, 2017

Credit File photo/Case.edu

Budget shortfalls have hurt Oklahoma’s credit rating, but a tapped rainy day fund may not do more damage to it.

The Pew Charitable Trusts finds the major rating agencies — Moody’s, S&P Global and Fitch — aren’t really penalizing states that tap their rainy day funds during an economic downturn. That may be because any expected penalty is offset by the more stable financial picture that results, said Pew researcher Jon Moody (no relation to the rating agency).

But, states shouldn’t get complacent with rainy day funds.

"This is a cushion to help ease the blow of a downturn, not something that should just completely replace or supplement revenues as if nothing happened," Moody said.

Moody said states must go back to saving when there’s an upswing, but rating agencies can’t say how much.

"And I know how frustrating that has to be for most state policymakers that there's not just one number to shoot for, but what they would suggest is that states study their revenue volatility and then determine what the savings target for their state should be," Moody said.

Oklahoma’s rainy day fund is currently empty but has been recognized by Pew for meeting several best practices benchmarks.

The state’s credit rating has fallen recently. Lower credit ratings mean higher interest rates on bonds. Because bond issues are often for hundreds of millions of dollars, a downgrade can cost millions.