One of the first things a personal financial planner will look at is a person’s debt. Most people having financial difficulty have way too much debt. The first thing financial planners recommend is that people eliminate all non-mortgage debt. When that is done they suggest you pay off your mortgage as soon as possible. Of course the best financial advice is to not go into debt in the first place but rather pay as you go.
The same advice applies to state governments as well as people.
Moody’s Investor Services recently released its state bond ratings report and the report tells us a lot about the financial stability of states and how they handle their finances. Only three states, South Dakota, Nebraska and Wyoming have no general obligation debt (debt backed by the state’s taxing authority).
Illinois had the worst bond rating, which raises the interest cost on bonds, of any state. New Jersey and Rhode Island have the next lowest ratings. Moody’s gave all three a negative credit outlook as they all struggle to balance their budgets with already under-funded pension plans.
Pennsylvania had its rating decreased as the state budget has structural imbalances and it’s using one-time monies to balance the annual budget.
The fact that South Dakota has no general obligation debt (our pensions are 100% funded and our budget is structurally balanced) means that it is much less likely that taxes will have to be raised in the future. That is a message that both current and prospective businesses like to hear.