New Mexico gets rating boost from Moody's

Moody's Ratings raised New Mexico's issuer rating to Aa1 from Aa2 almost 16 months after assigning the state a positive outlook and ahead of a general obligation bond sale.

For the one-notch upgrade and outlook revision to stable, Moody's cited "the state's well-established and prudent governance practices that have partially mitigated its reliance on volatile severance taxes."

"Investment earnings from more substantial permanent fund balances are now a more significant revenue source," the Jan. 9 rating report said.

In 2023, the state took action to cap the amount of certain volatile fossil fuel-related revenue flowing into the general fund, transferring the excess to the Severance Tax Permanent Fund starting in fiscal 2025.

New Mexico's financial cushion fueled by oil and natural gas severance tax revenue was highlighted by Democrat Gov. Michelle Grisham Lujan in December when she proposedan $11.3 billion fiscal 2027 budget that would maintain $3.4 billion in reserves.

Moody's also pointed to the state's low leverage and fixed costs, while warning it "faces some negative credit exposure from federal policy priorities that have led to federal job losses and the loss of Medicaid eligibility for approximately 100,000 residents beginning in January 2027."

The state's GO and senior and subordinate transportation tax bond ratings were upgraded to Aa1 from Aa2, while senior lien severance tax bond and school district intercept program ratings were lifted to Aa2 from Aa3.

Ratings for $166 million of the state's transportation bonds and nearly $925 million of mostly senior lien severance tax bonds had been downgraded a notch by Moody's in September 2024 following a review under updated methodology for special tax bonds.

Moody's also rated an upcoming $64 million capital projects GO bond issue Aa1. The bonds, which are scheduled for a Jan. 21 competitive sale, were rated AA with a stable outlook by S&P Global Ratings.

The higher ratings will allow the state to stretch taxpayer dollars further, according to Wayne Propst, cabinet secretary for the New Mexico Department of Finance and Administration.

"The upgrade also signals that the state's economy is stable at a time when many states are beginning to feel the pressures of a recession," he said in a statement. "Finally, it reflects a long-term investment in future generations by supporting sustainable budgeting and responsible financial planning."

New Mexico has $558.7 million of GO bonds, $1 billion of severance tax bonds, and nearly $498 million of highway bonds outstanding, according to budget documents. Legislative approval is being sought for a $1.5 billion transportation bond package, along with $444.2 million of severance tax bonds and $380.3 million of GO bonds.