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MPR News Staff

S&P: Minnesota's fiscal picture brightening, top debt rating may return

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Updated 2:25 p.m. | Posted 11:39 a.m.

The credit rating firm Standard & Poor's on Wednesday boosted its outlook for Minnesota from "stable" to "positive" with upbeat comments about the state's fiscal health.

While the move has little practical effect, it's a vote of confidence in Minnesota's economy and the state government's current finances.

The improving outlook also may open the door to S&P restoring the state's top AAA rating, given to the most financially sound states. Minnesota lost that top designation in 2011 following a budget impasse between Gov. Mark Dayton and the Legislature that led to a partial state government shutdown.

S&P on Wednesday cited the state's efforts to get its fiscal house in order as a reason for the outlook upgrade.

"The state has made significant progress by eliminating its school aid deferrals in 2014 and rebuilding reserves. It is well positioned as it enters fiscal 2016 with an expected surplus and leaves an estimated $456 million unappropriated at the end of the year, which gives it some additional flexibility," the rating agency said in a statement that also applauded the region's diverse economy and the economic strength of the Twin Cities metropolitan area.

S&P affirmed its current, near-perfect AA+ rating for the state's general obligation bonds but said the state may see its rating raised over the next two years "should the state continue to demonstrate a strong commitment to structural balance and avoid using payment deferrals or shifts, while managing budget growth pressures," the firm added.

The outlook could be downgraded, however, if pension obligations, budget pressure, health care costs and weaker economic growth "challenge the state's commitment to structural balance and reserve replenishment," it cautioned.

The S&P announcement came on the same day the state completed a $1 billion of sale of general obligation bonds — the largest single bond sale in the state's history.

Officials said the money will be used for construction on the state's college campuses, highway projects, and economic and redevelopment projects previously authorized by the Legislature.