What S&P Credit Rating Means for Ohio

While the S&P downgraded the federal government’s rating from AAA to AA+ negative, it upgraded Ohio’s AA+ negative rating to AA+ stable. Several reasons noted in the S&P report were Ohio’s recent budget reforms that closed the $8 billion shortfall without raising new taxes, continued economic recovery, and significant reduction in Ohio’s unemployment, according to the Wall Street Journal.

Gov. Kaisch’s unpopular fiscal manuvering is paying off.

Ohio is one of thirteen states given a AA+ credit rating by S&P. What do these ratings mean for Ohio? On the negative side of the ledger, Ohio is not among the twelve states with the strongest economies (acknowledged by S&P’s AAA credit rating) and therefore is not among the best places to invest. On the positive side, Ohio is among thirteen of the second best states in which to invest and develop business. Because credit worthiness equates to level of risk, Ohio is among states with the second lowest level of risk to investors and lenders. As WSJ noted, the improved credit rating also will reduce the cost of borrowing throughout the state. It may even attract attention of entrepreneurs to Ohio’s improving business environment.

The other twenty-five states in the Tax Foundation analysis pose greater credit risks and indicate less potential for economic growth, less ability to pay current and future debt, and consequently less attractive places to invest, for example less attractive to new business start-ups.

The key to economic stability and growth is sound fiscal management. When tempered by sound moral principles, prosperous political economy will result in the financial well-being of all citizens. The moral aspect of the political economy of states is usually overlooked in economic analysis. It certainly is not a factor in a state’s credit rating, but maybe it should.

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