S&P upgrades Arkansas' GO bond rating to AA-plus

S&P Global Ratings lifted Arkansas' general obligation rating to AA-plus with a stable outlook from AA, citing the state's financial management.

The upgrade on Thursday follows the rating agency's revision a year ago of its outlook on the state to positive from stable.

The higher rating reflects "Arkansas' active budget management and expenditure controls, which have enabled the state to maintain financial stability through various economic cycles and which have also yielded steady operating surpluses and growth in reserves and liquidity to levels near historical highs during a recent period of positive economic momentum," S&P analyst Andrew Stafford said in a statement.

"The rating action also incorporates our view that Arkansas remains committed to structural budget balance in future budgets, while sustaining large reserves and a low debt burden relative to peers that position it well to manage potential economic or revenue uncertainties over the outlook horizon," he added.

S&P said the state expects to end fiscal 2025 with a $280.2 million general fund surplus and called its fiscal 2026 budget, which anticipates revenue totaling about $6.8 billion, "reasonable."

Ratings on Arkansas Development Finance Authority lease-backed revenue bonds were also raised to AA from AA-minus, while the rating on the authority's Series 2020 state agencies facilities revenue refunding and construction bonds was upgraded to AA-minus from A-plus.

The upgrades came ahead of Arkansas' expected issuance of $25 million of GO bonds to fund water, wastewater, and irrigation projects throughout the state, according to Jim Hudson, secretary of the Arkansas Department of Finance and Administration.

"The upgraded rating by S&P to AA-plus stable recognizes the strength of the state's balance sheet and disciplined approach to managing its finances," he said in a statement.

Arkansas had $437.4 million of outstanding GO bonds as of June 30, 2024, according to its fiscal 2024 annual comprehensive financial report.

Arkansas is rated Aa1 with a stable outlook by Moody's Ratings.