N.C. Keeps AAA Bond Rating, Put on Watch

Despite receiving the highest ranking possible, the state was placed under "credit watch negative" by Moody's Investors Service.

Bond ratings determine how much money a state has to pay when it borrows money. If the bond rating drops, the state might have to pay millions more in interest payments.

Ten states received AAA standing from Moody's, but North Carolina was the only one of the group to be put on the watch list. North Carolina also was placed on the watch list in the early 1990s, when the state was facing a similar budget crunch.

Moody's analyst Caroline Cruise said the service looks at the economic environment, debt levels and the fiscal analysis of the state to determine the rating.

Cruise said Moody's will take 90 days to review North Carolina's fiscal condition before deciding whether to keep the state at the AAA level or bump it down.

"Basically, we'll look over these 90 days at the budgetary debate, what tax returns look like and look at the economy as a whole," she said.

Katherine Kirkman, director of public affairs for the N.C. Department of State Treasurer, said Moody's will be watching the state closely to confirm that the state is moving in the right direction. "They're looking for North Carolina to step up to the plate and make sure our budget is balanced and that we're taking measures to be fiscally responsible," Kirkman said.

She said a higher rating results in lower interest rates on borrowing because it shows the state has a good credit history.

Sen. Howard Lee, D-Orange, said keeping the AAA bond rating will be important for the N.C. General Assembly when it is called into session in May.

Lee said that if he were to rank the issues facing the legislature, bond rating would be high on the list, behind education spending and health care. "(We can remain AAA) if we can position ourselves so we have good revenue streams, reduce spending in line with the projected revenues, maintain a zero-growth budget, keep a strong commitment to adequate revenue funding and a long-term commitment to education," he said.

But Lee said he is confident the legislature will ensure that the state's rating does not drop. "I think we will (keep the rating) because its so important," he said. "Democrats and Republicans, House and Senate -- we're all committed to it."

The State & National Editor can be reached at stntdesk@unc.edu.