What factors influence a state’s S&P rating?
The factors that we follow to assign an S&P rating are detailed in published criteria. We look at a state’s economy, its finance and budget, its management practices and its debt profile.
What is California’s rating, and why is it so?
Our rating on California debt is A- with a positive outlook. An A- rating is four levels above “speculative-grade” (anything below BBB). But it is also seven levels from the top tier, AAA. The rating conveys our view that the state’s ability to repay its debt obligations is strong, but it ranks lower than the other states mostly because of an institutional environment that contributes to delayed and often suboptimal fiscal management decision making.
Say a state official asks, “What do we have to do to get our rating upgraded?” Are you allowed to answer?
Not specifically. Our reports spell out the rationale for a rating, and we typically highlight strengths and weaknesses. So any public official could look at the list of weaknesses and compare those to the published criteria and see where changing practices could potentially cause a higher rating. Some factors may be outside the control of policy makers: the general economic or demographic composition of a jurisdiction or a state, for example.
Are factors that are outside of a state’s control excluded?
Sometimes the factors that influence the ability of borrowers to repay debt are outside their control but nevertheless strengthen or weaken their ability. So we do not strive to adjust for factors that are either within or outside their control.
Could a state’s rating change merely because a new governor takes office?
Not directly because of a governor’s election. However, a different governor’s policies could contribute to a rating change. For example, an effort to enact more structurally balanced budgets has emerged during Gov. Jerry Brown’s administration than was the case under Gov. Arnold Schwarzenegger. We don’t link a rating to a person, but we don’t shy away from looking at the effect his or her policies have on credit quality.
What does a person have to be good at to do your job?
The most important things are thinking critically and writing well. As a student in political science, I did a lot of writing, and my professors graded my work and provided direct feedback. That was an advantage in coming from LMU. Many of my fellow graduate students had had only a teacher’s assistant or graduate assistant review their work.
This sounds like a job where the satisfaction level is a lot higher than the fun level. True?
I guess it depends on your definition of fun. The satisfaction level is high. It’s intellectually stimulating because of the research involved and the objective nature of the work. Calculating stress tests on cash flows and examining the ability of a government to repay its debt is almost like a puzzle, and in that way, it can be fun, I suppose. Not to oversell it.