Virginia holds the highest possible bond rating, AAA/AAA/Aaa, from three major credit rating agencies: Fitch, Standard & Poor’s (S&P), and Moody’s. These top notch ratings reflect Virginia’s strong financial management, stable economy, and comparatively low debt burden, and have been in place from the start of Virginia’s use of each agency: Aaa from Moody’s since 1938, AAA from S&P since 1962, and AAA from Fitch since 1991.
The AAA rating allows Virginia to borrow at lower interest rates when issuing debt, saving valuable tax dollars. The House Appropriations Committee authorizes the use of debt to build and renovate buildings, making a high rating status an important tool in managing the state’s overall fiscal health.
Budget Overview
On an annual basis, Virginia’s budget appropriates general fund to pay for debt service owed on previously issued bonds. The below chart shows the rate of actual debt service paid over the last 10 years and the projected debt service payments through FY 2035:
State debt is issued in Virginia for capital purposes such as the construction or renovation of buildings, roads, or infrastructure. The amount and type of debt issued depends on the nature of the project and its owner (i.e., state agency or authority, or institution of higher education).
- Debt may be authorized by the Appropriation Act or by separate legislation, such as Chapters 759 and 769, 2016 Acts of Assembly
- Note that authorized debt and issued debt operate on different timelines. Debt is authorized on the effective date of its enabling statute (ex: Appropriation Act or separate legislation). However, especially due to the nature of capital projects, the debt is often not issued for several years until the project advances to the construction stage.
Program/Policy Highlights
- Debt Capacity
When it comes to authorizing additional debt, Virginia’s decision-makers adhere to a fiscal policy whereby the total amount of debt service (principal + interest) stays below 5% of state blended revenues over a 10-year horizon. This limit is referred to as the state’s “debt capacity” and is updated on an annual basis in December reports issued by the state’s Debt Capacity Advisory Committee.
Even for those types of debt that do not count toward the debt capacity, financial policies require that applications for this type of debt undergo financial feasibility studies prior to General Assembly consideration.
- Types of Debt (VA Constitution)
Article X, Section 9 of Virginia’s Constitution sets out requirements for the state’s debt; with specifications as to whether the type of debt authorized is backed by the state’s general fund, known as “general obligation bonds (GOBs).”
Reports and Presentations
Resources and Deep Dives
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