(Editor's Note: S&P Global Ratings is no longer publishing or updating ESG credit indicators. See https://www.spglobal.com/_assets/documents/ratings/esg_credit_indicators_mr.pdf for more information.)
We are disclosing in this report our ESG credit indicators for the U.S. states and territories sector. Our ESG credit indicators provide additional disclosure and transparency at the entity level and reflect our opinion of the influence that environmental, social, and governance factors have on our credit rating analysis. They are not a sustainability rating or an S&P Global Ratings ESG evaluation.
Key Takeaways
- U.S. states and territories typically have broad tools and comprehensive risk management strategies embedded within their legal or statutory frameworks that help mitigate risks, including those stemming from environmental, social, and governance factors. As a result, our existing credit rating analysis for most of them generally incorporates an overall neutral influence.
- Climate transition and physical risks can severely influence one or more components of the criteria framework in our credit rating analysis. For some states, the combined influence of these risks results in a moderately negative (E-3) or negative (E-4) credit indicator.
- We observe limited variability in our assessment of state government frameworks, the element in our criteria framework where we typically incorporate governance factors. The autonomy to manage operations and operational flexibility for the sector is tempered by countervailing pressures from reduced federal government funding or unfunded mandates that increase service level requirements that could influence state spending. This dynamic reflects why we did not apply any G-1 credit indicators.
Our ESG Credit Indicators
Table 1
| ESG Credit Indicators | |||
|---|---|---|---|
| Influence on credit rating analysis | Environmental credit indicator | Social credit indicator | Governance credit indicator |
| Positive | E-1 | S-1 | G-1 |
| Neutral | E-2 | S-2 | G-2 |
| Moderately negative | E-3 | S-3 | G-3 |
| Negative | E-4 | S-4 | G-4 |
| Very negative | E-5 | S-5 | G-5 |
In our ESG credit ratings criteria, "Environmental, Social, And Governance Principles In Credit Ratings," published Oct. 10, 2021, we articulate the principles that S&P Global Ratings applies to ESG credit factors in our credit ratings analysis. In that criteria we define ESG credit factors as those ESG factors that can materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis. We note that when sufficiently material to affect our view of creditworthiness, ESG credit factors can influence credit ratings.
In "ESG Credit Indicator Definitions And Application" (Oct. 13, 2021), we discuss the introduction of ESG credit indicators as a complement to our existing narrative to enhance transparency by providing additional disclosure by reflecting our opinion of how material the influence (on a 1-5 scale) of ESG factors is on our credit rating analysis. We assess these indicators on a net basis, meaning that we take a holistic view of exposure to environmental, social, and governance factors and related mitigants on the credit rating analysis. They are not a sustainability rating or an S&P Global Ratings ESG evaluation.[1]
Accordingly, the application--or change--of an ESG credit indicator cannot in itself trigger a credit rating or outlook change. However, the impact of ESG factors on creditworthiness could contribute to a rating action, which in turn could lead to a change in the ESG credit indicator. Through the release of ESG credit indicators, we aim to further delineate and summarize the relevance of ESG factors to our credit analysis by isolating our opinion of their influence and separating it from the non-ESG factors affecting the credit rating.
The scale for environmental credit indicators is identical for social and governance credit indicators. It has a negative skew, which reflects our view that environmental, social, and governance considerations (including risks outside of an entity's control) typically have a negative influence more often than a positive one. An ESG credit indicator of E-2, S-2, or G-2 means that it is currently a neutral consideration in our credit rating analysis. This does not necessarily mean that ESG factors are not relevant, rather that they are currently not sufficiently material to alter the credit rating analysis or that positive ESG considerations are offset by ESG-related risks.
Also, entities may have identical ESG credit indicators, even if they diverge on ESG characteristics and performance. This may be the case because we only incorporate in our credit rating analysis those ESG factors that materially influence creditworthiness and for which we have sufficient visibility and certainty or because the differentiation in ESG characteristics is not in our view sufficiently material to warrant a different ESG credit indicator outcome.
For more information on how we incorporate ESG risks and opportunities in our credit rating analysis, please see:
- Through the ESG Lens 3.0: The Intersection of ESG Credit Factors and U.S. Public Finance Credit Factors, March 2, 2022
- ESG Brief: Incorporating Climate Transition Risk in U.S. States Credit Ratings, March 22, 2022
- ESG Brief: ESG Pension and OPEB Analysis in U.S. Public Finance, Oct. 7, 2021
- ESG Brief: Cyber Risk Management in U.S. Public Finance, June 28, 2021
[1] ESG credit indicators are separate and distinct from S&P Global Ratings ESG evaluations. An S&P Global Ratings ESG evaluation is not a credit rating or component of our credit rating methodology. Rather, it indicates our view of an entity's relative exposure to observable ESG-related risks and opportunities, and our qualitative opinion of the entity's long-term sustainability and readiness for emerging trends and potential disruptions. Moreover, the ESG evaluation considers the impacts and dependencies on the environment and society across the value chain for a wide range of stakeholders, regardless of current credit materiality. (For more on ESG evaluations, see "Environmental, Social, And Governance Evaluation Analytical Approach," Dec. 15, 2020.)
Sector Overview
Environmental Credit Factors
In the sector, 25% have a moderately negative (E-3) or negative (E-4) influence from physical risks within our credit rating analysis. In some cases, a state's physical risks are relatively localized, which can help mitigate the effect in the credit rating analysis, while in other cases the prevalence or magnitude of the exposure, following a low probability but high impact event, could result in a material change to the influence of the risk in our credit rating analysis, which reflects an E-3 credit indicator. We may also apply an E-4 credit indicator depending on the severity of influence on one or multiple criteria components in our credit rating analysis. Despite the growing frequency of physical risks and rising costs for states, we believe the federal-state partnership activated in response to an event, including assistance from the Federal Emergency Management Agency, is an important mitigant preventing an application of an E-5 credit indicator.
In addition, 16% of the sector has a moderately negative or negative influence from climate transition risks, reflecting certain states' relative economic and financial exposure to high fossil fuel (coal, oil, and natural gas) production and energy generation. These mineral producing states face ongoing risk from increasing regulations of carbon emissions and an accelerating energy transition to renewable energy. Over time, we expect these evolving credit risks to exert negative pressure on state operating environments. The credit rating analysis for three states (Alaska, Texas, and Louisiana) is influenced by both climate transition and physical risks.
Furthermore, 8% of the sector faces moderately negative influence from natural capital risks due primarily to inherent water supply scarcity that could constrain economic growth. This could necessitate long-term resource planning and require states to undertake more substantial capital investments that could affect its debt and liability profile to mitigate the effects of drought and other related natural resource pressures.
Chart 1
Chart 2
Social Credit Factors
We view the risk for 20% of the sector as moderately negative (S-3) or negative (S-4), particularly when demographic trends (e.g. population growth, age dependency, income levels) are notably below national averages and influence the economic component of our criteria. States with strong demographic growth are typically better positioned to attract economic development and exhibit stronger activity levels that help generate revenue from income, sales, and other user taxes and fees. Strong and sustained population growth trends and a favorable age dependency ratio can contribute to a positive, long-term trajectory for gross state product and personal income levels that support revenue growth, although this can also affect affordability and is often offset by growth-related costs that arise from capital infrastructure and service demands that results in a net neutral influence in our credit rating analysis.
Chart 3
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Governance Credit Factors
We generally take a neutral view of governance in our credit rating analysis for the sector (resulting in application of a G-2 credit indicator). We view 12% of the sector as having a moderately negative (G-3) or negative (G-4) influence from a governance factor, given the overlap of risk management, culture, and oversight risks that influence a state's debt and liability profile. Typically, this risk is incorporated in our analysis of a state's pension and OPEB plan governance, and by extension, the potential for increased annual contributions that could influence budgetary performance. Through the lens of this governance factor, we consider a state or territory's forward-looking plan governance decisions, risk mitigation planning, its legal flexibility and practical ability to implement of assumption changes and plan reforms, and prioritization of plan contributions in our credit rating analysis.
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ESG Credit Indicators By U.S. State and Territory
Table 2
| ESG Credit Indicators For U.S. States And Territories | |||||
|---|---|---|---|---|---|
| Issuer | Credit indicators | ESG credit factors | ESG comments | ||
| E | S | G | |||
|
Alabama |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Alabama. The state’s steady population growth (albeit slower than the U.S.), favorable business climate, and management’s use of economic development initiatives continue to attract business investment and support annual growth trends in GSP and personal income metrics relative to the nation. We believe these factors offset potential social capital risks stemming from the state’s higher age-dependency ratio (65.6) and aging workforce projections and regional risks that exhibit population out-migration, poverty, and unemployment rates that lag the state and the nation. | |
|
Alaska |
E-4 | S-3 | G-2 | Climate transition risk, physical risks, social capital | Environmental factors are a negative consideration in our credit rating analysis for Alaska. The state’s countercyclical economy from the high concentration in the oil and gas industry including reliance on 40% of its unrestricted budgeted revenue from energy related taxes exposes it to economic and budgetary pressures given policy and regulatory changes to decarbonize the economy. Furthermore, physical climate-related risks include exposure to weather events and rising sea levels, which negatively affects fisheries and marine products that accounts for more than 35% of exports in 2020. Social factors are moderately negative considerations in our credit rating analysis. Social risks stem from elevated unemployment levels at 1% above the national average and below-average population growth. In addition, more than one-third of the state’s population is enrolled in Medicaid as of July 2021. The dependent population represented in the Medicaid roll could lead to higher service costs and budgetary balance challenges. Finally, although the state is following its statutory balanced budget requirements, it will need to address budgetary pressures while facing uphill political and practical limitations to diversify its economic base and revenue sources relative to the energy sector concentration, which we believe raises risk management concerns. |
|
Arizona |
E-3 | S-2 | G-2 | Physical risk, natural capital | Environmental factors are a moderately negative consideration in our credit rating analysis for Arizona. We view the state as having an elevated natural capital risk due to droughts and as limited supplies of drinking water, primarily sourced from Lake Mead in its largest MSA, compete with a growing population. However, we view proactive measures to secure rights to additional water sources, including the Colorado River, to support its fast-growing population as mitigating this risk. We believe the state has strong demographic trends compared with the nation, specifically continued significant population growth at more than twice the U.S. rate in the last 10 years, although this is somewhat offset by a higher age dependent population (68.0 ratio)) as well as the corresponding growing need for investment in education and social services which could have implications on state finances. The state plans to invest about 29% more in education by 2023 compared to 2021 levels. |
|
Arkansas |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Arkansas. | |
|
California |
E-3 | S-3 | G-3 | Physical risk, social capital, transparency and reporting | ESG factors are a moderately negative consideration in our credit rating analysis for California. The exposure to various climate-related events such as wildfires and drought and natural disasters such as earthquakes can affect the state’s economy and disrupt population migration should these areas become undesirable. The state incorporates increased spending in response to these risks within its long-term financial and capital planning. Furthermore, the shortage of affordable housing, high social service costs, and income disparity have challenged demographic trends. In addition, about one third of the state’s population relies on Medicaid. However, we believe the state is addressing these concerns through increased funding for various social programs, such as bond financed programs for housing of the homeless mentally ill, changes to residential zoning laws, and increased social service spending. Finally, the state has persistently provided audited results well after the end of the fiscal year. For the fiscal year ended June 30, 2020, audited results were released Feb. 2, 2022, which we consider very late. |
|
Colorado |
E-3 | S-2 | G-2 | Physical risk, natural capital | Environmental factors are a moderately negative consideration in our credit rating analysis for Colorado. The state has elevated risk of wildfires, as well as water scarcity stemming from drought conditions and as limited supplies of Colorado River drinking water compete with a growing population, which we expect the state to factor into its long-term plans. Social factors have an overall neutral influence on our credit rating analysis. We believe the state has strong demographic trends compared with the nation, specifically population growth faster than the nation and a lower age dependency ratio of 57.5% compared to 63.1% for the nation, although this is somewhat offset by rising home prices, which may slow future growth, and the need for increased education spending as school enrollment grows. |
|
Connecticut |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Connecticut. Although fixed costs will likely comprise 50% or more of its budget and could constrain expenditure flexibility and financial performance in the future if left unmitigated, we view a continuing commitment to budgetary requirements to contribute excess revenues above its volatility and reserve caps to pay down long-term liabilities, statutory allowances to pre-fund OPEB liabilities, and a strong framework for forecasting fixed cost growth demonstrate Connecticut’s ability to manage these risks over the long-term. Furthermore, we believe recent in-migration trends and agency-level planning and increased funding for various social programs that anticipate future service needs mitigate demographic pressures, including aging and essentially flat growth of its working age population. | |
|
Delaware |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Delaware. The geographical exposure to ocean storms and Delaware and Christiana River flooding could lead to higher infrastructure costs affecting the state’s debt and liability profile. However, the state’s recently adopted climate action plan focuses on reducing greenhouse gases and maximizing resilience to climate change, we view as a step towards mitigating the risk. | |
|
Florida |
E-3 | S-2 | G-2 | Physical risk | Environmental factors are a moderately negative consideration in our credit rating analysis for Florida. The vast coastline as a peninsular state exposes it to chronic and acute physical risks including flooding and long-term sea-level rise. Given that three-fourths of the state’s population reside in its 35 coastal counties, and represent nearly 80% of its economic output, evolving environmental changes could result in longer-term credit deterioration. However, we believe this risk is mitigated by the creation of state-sponsored insurance entities to provide for a stable market and recent measures to address environmental protection including $846 million for targeted water quality improvements, $629 million to support Resilient Florida initiatives, and $522 million for Everglades restoration (fiscal year 2022). Social factors have an overall neutral influence in our credit analysis. Although the state's age dependency is above the national average by four percentage points, which could lead to higher service costs, its demographic growth has supported positive economic activity and employment trends overall. |
|
Georgia |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Georgia. | |
|
Guam |
E-4 | S-3 | G-4 | Physical risk, social capital, governance structure | Environmental factors are a negative consideration in our credit rating analysis for Guam. As an island located on the pacific tectonic plate, the territory’s exposure to physical risks is exacerbated by the size of the island, the significant concentration of the economy in the tourism sector, and historically weak finances which limit the territory’s ability to recover quickly from economic disruptions. Social factors are moderately negative due to social capital concentrations in tourism which creates an exposure to the island’s budget and economy. Finally, governance factors are negative reflecting our view of Guam’s weaker policy and fiscal relationship with the federal government compared to states as well as its significantly high debt and liability burden relative to its tax base. |
|
Hawaii |
E-3 | S-2 | G-2 | Physical risk | Environmental factors are a moderately negative consideration in our credit rating analysis for Hawaii. As an island located on the Pacific tectonic plate, the state is exposed to acute and chronic physical climate risks that could lead to economic and budgetary stress following a high impact event. However, we view the following mitigants as helping to alleviate additional pressure within our credit rating analysis: strong financial management incorporating these risks in its long-term plan including establishing hurricane relief fund to support private property insurance, and statewide coordination and oversight through its Emergency Management Agency. While we view social factors as neutral overall, its social capital risks are slightly higher than the sector given somewhat elevated aging demographics and substantially higher cost-of-living metrics that could affect the state’s economy in the long-term if trends intensify. |
|
Idaho |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Idaho. | |
|
Illinois |
E-2 | S-2 | G-3 | Risk management, culture, and oversight | Governance factors are a moderately negative consideration in our credit rating analysis for Illinois. Constitutional limits constrain the state’s legal flexibility to modify or implement pension benefit reforms. In addition, the statutory funding policy framework requiring contributions sized to achieve a 90% funded ratio in 2045 has led to persistent underfunding that does not meet S&P Global Ratings' static funding measurement. In our view, this creates an annual near-10% structural gap in the budget. Illinois recently began fully funding the statutory contribution requirements and expects pension costs should remain stable at roughly 25% of the general fund expenditures. |
|
Indiana |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Indiana. | |
|
Iowa |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Iowa. | |
|
Kansas |
E-2 | S-2 | G-3 | Risk management, culture, and oversight | Governmental factors are a moderately negative consideration in our credit rating analysis for Kansas. The state’s costs associated with long-term liabilities puts credit pressure on Kansas following previous years of underfunding pension contributions at levels below actuarial recommendations, which, in our opinion, will lead to contribution escalation and the potential for budgetary pressure. However, the state plans to begin making actuarially determined contributions in fiscal 2022 and expects to adhere to this plan following its recent issuance of pension obligation bonds. Although the state’s demographic trends somewhat lag those of the nation, its central location in the country, access to numerous interstates, and commitment to e-commerce demand help alleviate credit pressure stemming from social capital risks. |
|
Kentucky |
E-2 | S-3 | G-2 | Social capital | Social factors are a moderately negative consideration in our credit rating analysis for Kentucky. Kentucky’s population growth continues to lag the U.S. and its demographics show an age dependency ratio of 64.8, 1.7% above that of the nation. We also view these trends as potentially affecting service-level costs associated with Medicaid eligibility and caseloads where one in three residents are covered under this program. With recent changes to Kentucky’s Teachers Retirement System as discussed in "Teachers’ Pension Plan Changes Are A Step Forward for Kentucky’s Finances," published Jan. 25, 2022, and reduced reliance on one-time items to balance the budget, our view of governance factors is neutral within our credit rating analysis. |
|
Louisiana |
E-3 | S-3 | G-2 | Climate transition risk, physical risk, social capital | Environmental and social factors have a moderately negative consideration in our credit rating analysis for Louisiana. The state’s coastline along the Gulf of Mexico exposes it to extreme weather events and long-term sea-level rise. The state ranks second behind Texas for most billion-dollar storms since 1980. Given its history of significant natural disasters, the state has developed long-term mitigation and resiliency plans to minimize climate-related risks including a recently adopted climate action plan. Furthermore, its comparatively greater penetration of energy-related activities from the oil and gas sector and the potential for increasing regulatory challenges or costs as some sectors of the global economy transition to more renewable energy adds risk to replace revenue generated from the industry. Compared to the nation, Louisiana’s population growth in the past decade was 4.3 percentage points lower and effectively flat in the last five years. These trends could hinder economic diversification as the state undertakes efforts to support employment displaced by energy transition. |
|
Maine |
E-2 | S-3 | G-2 | Social capital | Social factors are a moderately negative consideration in our credit rating analysis for Maine. Demographic pressures, including the state’s age dependency (65.6) and more than one-fifth of the population age 65 or older could limit economic and business growth relative to other states as the prime working-age population declines, and finances could become constrained by higher service levels (e.g., health care, transportation, and other aging support services) or contribute to long-term revenue stagnation due, in part, to declining household incomes at retirement. We view mitigants, including state agencies' active planning and policy framework related to addressing needs of an aging population and an increase in Maine's population over the past five years due to improved net domestic and international in-migration help to alleviate additional pressure within our credit rating analysis. |
|
Maryland |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Maryland. Located along the Atlantic Ocean and home to Chesapeake Bay, Maryland faces risk from rising sea levels. However, we believe the risk is addressed by the state’s active management of the Chesapeake watershed and runoff, enacted fees to provide funding for state and local resilience projects, and adopted legislation with the goal of reducing greenhouse gas emissions. | |
|
Massachusetts |
E-3 | S-2 | G-2 | Physical risk | Environmental factors are a moderately negative consideration in our credit rating analysis for the Commonwealth of Massachusetts. The state has coastal exposure, with about two-thirds of its population in the Boston MSA and substantial property value in the combined Boston and Cape Cod area, exposing the state to significant economic disruption following a high-impact event. However, we note that the commonwealth has been addressing environmental risks since 2004 through its Climate Protection Plan. |
|
Michigan |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Michigan. Although water quality and lead pipe issues have negatively affected local communities including Flint, the state is supporting the mitigation of waste and pollution concerns through improved oversight and grant programs to help offset infrastructure costs. In addition, without the state’s focus on correcting this issue, we believe its credit profile could be pressured should reputational and potential health and safety risks associated with aging infrastructure negatively affect economic development or cause population growth to stall. | |
|
Minnesota |
E-2 | S-2 | G-2 | ESG factors have no material influence our credit rating analysis for Minnesota. | |
|
Mississippi |
E-2 | S-3 | G-2 | Social capital | Social factors are a moderately negative consideration in our credit rating analysis for Mississippi. In our view, the state’s demographics challenge Mississippi’s long-term economic growth potential while suppressing income levels. The state’s educational attainment levels are among the lowest in the country while poverty levels are among the highest. IHS Markit reports only 85% of Mississippians over the age of 25 are high school graduates (3 percentage points lower than the national average) and only 33% in that age group have an advanced degree (compared with 41% for the country). In addition, the state has recorded a cumulative population decline of 0.01% from 2011 to 2020, while the nation's population has grown by 0.63% over the same period, according to the U.S. Census Bureau. |
|
Missouri |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Missouri. | |
|
Montana |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Montana. Montana has largely mitigated its exposure to the energy sector through diversification efforts into renewable energy production. Natural resource taxes declined to $69.7 million, or only 2.9% of general fund revenue in 2020, down from $126.3 million, or 8.1% in 2010; and the state has absorbed the revenue loss without negative influence on its budgetary balance. Also, Montana produces 45% of its energy from renewables, which ranks among the top 10 states in the nation. It is also the sixth-largest producer of hydroelectric power, potentially mitigating the effects on its credit profile from the transition to net-zero. | |
|
Nebraska |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Nebraska. | |
|
Nevada |
E-3 | S-2 | G-2 | Physical risk, natural capital | Environmental factors are a moderately negative consideration in our credit rating analysis for Nevada. We view the state as having an elevated risk of water scarcity due to droughts and as limited supplies of drinking water compete with a growing population, which we expect the state to factor into its long-term plans. Social factors have an overall neutral influence, which considers the state’s strong demographic trends compared with the nation, specifically continued significant population growth at more than twice the U.S. rate in the last 10 years and a lower age dependent population. However, these strengths are somewhat offset by the state’s employment concentration in tourism which creates an exposure to its budget and economy as well as the growing need for spending on education and social services which could affect future budget considerations. |
|
New Hampshire |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for New Hampshire. | |
|
New Jersey |
E-2 | S-2 | G-3 | Risk management, culture, and oversight | Governance factors are a moderately negative consideration in our credit rating analysis for New Jersey. The state’s poorly funded pension plans reflect decades of significantly underfunding contributions including years where the state did not make any contributions. However, following reforms in 2011, the state began slowly increasing its contributions and statutory changes in 2017 allowed lottery revenue to supplement general fund appropriations. In part due to these changes, the state paid its full actuarily determined contribution in fiscal 2022 for the first time in more than two decades, demonstrating improved governance. Although the state faces environmental risks from its coastal exposure, it is engaged in mitigation efforts including statewide storm water management plans, beach replenishment efforts, and bayside bulkhead projects. Social risks stem from court mandates regarding school funding in low-income districts, although recent reforms mitigate impact on the budget. |
|
New Mexico |
E-3 | S-3 | G-2 | Climate transition risk, social capital | Environmental and social factors are a moderately negative consideration in our credit rating analysis for New Mexico. The state is the third-largest crude oil producer in the nation with $3 billion in energy related taxes collected in fiscal 2021, representing 35% of general fund revenue. Concentration in carbon emission-intensive industries could negatively affect financial operations given policy and regulatory efforts to transition to net-zero. Favorably, the state can diversify its revenue sources by raising taxes via three-fifths vote by the legislature as per the state constitution and has undertaken efforts to expand job diversification through the solar power industry. Currently, 40% of the state’s population is enrolled in Medicaid, which ranks it the highest in the country as of July 2021. We believe this is indicative of the state’s service needs that could challenge budgetary performance, particularly in times of economic stress. |
|
New York |
E-3 | S-2 | G-2 | Physical risk | Environmental factors are a moderately negative consideration in our credit rating analysis for New York. The state has coastal exposure particularly in New York City and Long Island, with about 40% of the state’s population and a high concentration of the state’s economic activity (roughly half of the jobs in the state). A high impact event in this region, such as Superstorm Sandy or Hurricane Ida that caused significant flooding, could disrupt the state’s economy and budgetary balance if revenue collections are curtailed. |
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North Carolina |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for North Carolina. | |
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North Dakota |
E-3 | S-2 | G-2 | Climate transition risk | Environmental factors are a moderately negative consideration in our credit rating analysis for North Dakota. At 3.7%, the state’s mining and logging employment composition is well above the U.S. at 0.4%. Oil, gas, and coal taxes comprised nearly 64% of state exports in 2020 and approximately 14% of 2021 general fund revenue. Despite the influence of the energy sector in the state’s economy and budget, we believe the risks are largely mitigated through reduced general fund reliance on the sector and economic diversification, particularly in the state’s eastern metro areas. The state limits general fund revenue from oil, gas, and coal taxes to $400 million (9% of biennial general fund expenditures) per biennium leading to greater diversification in revenue sources that support the state’s operating profile.. |
|
Ohio |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Ohio. In our view, the state’s strong financial and budgetary management--informed by regular economic and financial forecasting--provide the state with a longer-term planning horizon to address potential demographic risks, and its extensive capital planning and policy efforts aimed at diversifying Ohio’s economic base remain key state-level mitigants to social capital risks. However, we view social capital risks stemming from regional or localized demographic pressures, such as declining aging prime working-age population, out-migration, and low population-replacement rates, could be influential for local government credit ratings. | |
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Oklahoma |
E-3 | S-2 | G-2 | Climate transition risk | Environmental factors are a moderately negative consideration in our credit rating analysis for Oklahoma. The state has a higher penetration of carbon-intensive oil and natural gas production within its economic profile compared to the U.S. states sector. A shift in national and global policy and demands to reduce carbon-intensive energy production and transition to renewable energy could reduce mining employment (4.75x the U.S. average) and gross state product (12% of state GSP). While direct gross production taxes comprise just 6% of the state’s general revenue, income and sales taxes exhibit sensitivity to declines in mining sector activity, given that income from oil and gas production trend above average personal income for the rest of the state. However, Oklahoma’s economic diversification efforts, including its position as the nation’s third largest wind energy producer, and longstanding constitutional and budget management requirements help alleviate additional pressure within our credit rating analysis. |
|
Oregon |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Oregon. Although Oregon has some environmental risks including wildfires in the state's expansive forests and flooding along its estuaries, we believe these risks are mitigated by the state’s wildfire recovery and preservation efforts include funding for projects related to water infrastructure, fire, and public safety infrastructure, among others. | |
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Pennsylvania |
E-2 | S-2 | G-3 | Governance structure | Governance factors are a moderately negative consideration in our credit rating analysis for Pennsylvania. The commonwealth has a history of acrimonious budget negotiations that have resulted in budget impasses under multiple administrations and legislatures. Notably, these impasses have previously and temporarily affected the state’s liquidity by creating internal borrowing challenges that led to short-term delays in some payments (excluding debt service). However, we believe, even despite budget impasses, the commonwealth maintains substantial legal ability to adjust revenues, expenditures, and disbursements. Furthermore, we believe the commonwealth maintains sufficient access to external liquidity, if needed. |
|
Rhode Island |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for Rhode Island. Rhode Island’s vast 400-mile coastline adjacent to Narragansett Bay and the northern Atlantic Ocean exposes the state to acute physical risks (e.g. hurricanes), and chronic physical risks (e.g. sea level rise) that could affect its economic profile. However, key mitigants include proactive and strategic resiliency action planning in state agencies, capital investments to harden critical infrastructure, and initiatives to reduce greenhouse gas emissions. Furthermore, we view social risks as somewhat elevated, although credit neutral, with demographic pressures stemming from slowing population growth, net out-migration, and an aging workforce that may alter service demands and limit future economic growth prospects. | |
|
South Carolina |
E-2 | S-2 | G-2 | ESG factors have an overall neutral influence on our credit rating analysis for South Carolina. The state’s exposure to the Atlantic coast and related physical climate risks - including severe storms, hurricanes, and inland and coastal flooding has, in the past, resulted in severe economic and financial disruption. The South Carolina Emergency Division reports that from 2012 to 2019, five major flooding disasters caused nearly $4.4 billion in damage. Coastline communities that are largely economically dependent on tourism and densely populated often face the greatest risks, including Charleston, Hilton Head Island, and Myrtle Beach. However, we view state efforts, including the establishment of a Floodwater Commission in 2018 created to recommend projects to reduce the impact of future storms, improve coordination across agencies, and seek federal grant funding as mitigants that help offset the risk. | |
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South Dakota |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for South Dakota. | |
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Tennessee |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Tennessee. We note however, that Tennessee's governance has typically reflected a culture of well-embedded risk management, particularly its proactive nature and discipline in funding its long-term liabilities, robust oversight and reporting requirements, and incorporation of strategic planning around emerging risks. | |
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Texas |
E-3 | S-2 | G-2 | Climate transition risk, physical risk | Environmental factors are a moderately negative consideration in our credit rating analysis for Texas. Environmental risks are primarily two-fold: energy transition and physical risks stemming from severe weather events and sea-level rise. The state has a comparatively greater penetration of energy-related activities from the oil and gas sector, which could lead to increasing regulatory challenges or costs as some sectors of the global economy focus on reducing greenhouse gas emissions through renewable energy. However, the state is one the country's leaders in renewable energy, principally wind energy with an installed capacity more than only four countries: China, the U.S. (with Texas), Germany, and India. The state’s leadership in our view provides a pathway for future economic and employment opportunities in a green economy. Favorably, the state’s chief operating fund does not depend on severance taxes though its rainy-day reserve and state highway fund receive the bulk of the revenue, which to-date have given the state substantial flexibility to manage through economic cycles. Given the state’s large coastline along the Gulf, physical risks are elevated, but are more localized for communities in this region versus the state as a whole. |
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Utah |
E-3 | S-2 | G-2 | Physical risk, natural capital | Environmental factors are a moderately negative consideration in our credit rating analysis for Utah. Utah, situated in the upper Colorado River basin, shares water usage with several other states along the river. We believe the state faces elevated natural capital risk due to long-term challenges regarding water supply, which could remain a constraint for its economy and demographic profile as resources are projected to remain suppressed, particularly given pervasive drought conditions in the western U.S. Furthermore, IHS Markit reports Utah’s population grew by 17% over the last 10 years, making it the fastest growing state during this period. However, we believe Utah’s ongoing demonstration and commitment to planning for long-term water challenges helps to alleviate additional pressure within our credit rating analysis. These efforts include consolidating various action plans and directing both state and federal funds to water infrastructure and conservation projects. |
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Vermont |
E-2 | S-3 | G-2 | Social capital | Social factors are a moderately negative consideration in our credit rating analysis for Vermont. In our view, the state’s demographics, which are among the oldest in the nation, could limit long term economic growth. Data from the Census Bureau indicate that in 2020, the median age of the Vermont population was 42.8 years, 4.3 years older than the national average median age of 38.5 years. Furthermore, the state has recorded a cumulative population decline of 0.04% from 2011 to 2020, while the nation's population has grown by 0.63% over the same period. The state has pursued several initiatives aimed at mitigating demographic challenges including workforce development initiatives to attract and retain remote workers. In our view, the state’s focus on addressing this challenge over the years helps to alleviate additional pressure within our credit rating analysis. |
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Virginia |
E-2 | S-2 | G-2 | ESG factors have no material influence in our credit rating analysis for Virginia. The Hampton Roads region, represented by the Virginia Beach-Norfolk-Newport News, VA-NC, metropolitan statistical area (MSA), is exposed to the Atlantic coast and related physical climate risks - including rising sea levels and flooding. The MSA represents less than one-quarter of the commonwealth’s population and about 18% of the annual GSP. Despite the economic and population concentration in Hampton Roads, we believe exposure remains relatively localized and less acute for the commonwealth as a whole. | |
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Washington |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Washington. Although the state faces a combination of exposures from rising sea levels along the state's vast coastline and risk of wildfires in its expansive forests, we believe these risks are mitigated by Washington's planning and practices including tasking state agencies with studying the impacts of climate change and incorporating climate studies into economic and revenue forecasting, among others. | |
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West Virginia |
E-3 | S-4 | G-2 | Climate transition risk, social capital | Social factors are a negative consideration in our credit rating analysis for West Virginia. Based on 2020 Census figures, the state's compound annual population growth rate over the past decade was negative 0.3% compared to growth for the nation of 0.7%, ranking it as the slowest-growing state. Wealth and income indicators also rank poorly, with per capita personal income at $45,109 in 2020, only 76% of the U.S. average. With a high age dependency ratio of 68.1, we expect the state's demographics to remain a challenge to economic development. Environmental factors are a moderately negative consideration in our credit rating analysis of West Virginia. Since 2009, West Virginia has lost 56% of its mining jobs, and as economies continue to transition to renewables, we expect the downward trend to continue and potentially lead to economic and revenue decline. |
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Wisconsin |
E-2 | S-2 | G-2 | ESG factors have no material influence on our credit rating analysis for Wisconsin. The state’s well-embedded risk management and oversight practices provide considerable legal and practical flexibility to control long-term pension and OPEB costs, which remain an important mitigant to Wisconsin’s moderate-to-moderately high debt and cyclical financial pressures. Wisconsin Retirement System shares contribution volatility risks across employers and active participants, and its emphasis on steady funding discipline with assumptions and actuarial methods that reduce the likelihood of contribution cost escalation, position Wisconsin to sustain one of the nation's best-funded pension plans. | |
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Wyoming |
E-4 | S-2 | G-2 | Climate transition risk | Environmental factors are a negative consideration in our credit rating analysis for Wyoming. The state is exposed to significant climate transition risks due to its dependence on the coal, oil, and gas mining industries for both tax revenue and employment. In 2020, 6.0% of Wyoming’s non-farm employment was in mining and logging, compared to 0.4% nationally. As national and global economies trend toward net-zero, we believe the reliance on this sector for economic growth exposes the state to potential budgetary challenges given that about 24% of the state’s fiscal 2020 school program aid fund, and 27% of general fund revenue on a GAAP basis was derived from this sector, even after a 30% drop in mineral severance tax compared to 2019. To-date the state maintains very large financial reserves, despite the recent volatility in revenues due to oil price performance. |
This report does not constitute a rating action.
| Primary Credit Analysts: | Thomas J Zemetis, New York + 1 (212) 4381172; thomas.zemetis@spglobal.com |
| Nora G Wittstruck, New York + (212) 438-8589; nora.wittstruck@spglobal.com | |
| Secondary Contacts: | Geoffrey E Buswick, Boston + 1 (617) 530 8311; geoffrey.buswick@spglobal.com |
| Sussan S Corson, New York + 1 (212) 438 2014; sussan.corson@spglobal.com | |
| David G Hitchcock, New York + 1 (212) 438 2022; david.hitchcock@spglobal.com | |
| Ladunni M Okolo, Dallas + 1 (212) 438 1208; ladunni.okolo@spglobal.com | |
| Oscar Padilla, Dallas + 1 (214) 871 1405; oscar.padilla@spglobal.com | |
| Cora Bruemmer, Chicago + 1 (312) 233 7099; cora.bruemmer@spglobal.com | |
| Anne E Cosgrove, New York + 1 (212) 438 8202; anne.cosgrove@spglobal.com | |
| Seth Evans, New York (1) 212-938-0930; seth.evans@spglobal.com | |
| Jillian Legnos, Hartford + 1 (617) 530 8243; jillian.legnos@spglobal.com | |
| Rob M Marker, Centennial + 1 (303) 721 4264; Rob.Marker@spglobal.com | |
| Scott Shad, Centennial (1) 303-721-4941; scott.shad@spglobal.com | |
| Tiffany Tribbitt, New York + 1 (212) 438 8218; Tiffany.Tribbitt@spglobal.com |
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