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Master's Professional Reports Abstract



A comparative study on Texas and triple A rated states
Cabello, Claudia
REPORT 2000 C111 Public Affairs Library

In 1987 the State of Texas suffered from major economic recession and lost its AAA bond rating from the bond rating agencies Standard & Poor's, Moody's Investors Service, and FitchIBCA. In 1997, the State implemented measures to improve government debt management with the goal of restoring the state's bond rating to the highest level of creditworthiness, AAA. Despite those measures and explosive economic growth and diversification in the 1990's, Texas did not acheive a AAA. This report compared Texas to the nine states rated AAA, using rating agency criteria. This study shows that Texas' financial system is structurally weaker than the AAA rated states. Texas cannot rely solely on continued economic growth to overcome this and meet rating agency benchmarks. However, given the political nature of Texas, the study suggests that the marginal benefits of reaching a AAA may not be worth the costs to do so. Furthermore, uncertainties in the market point to a weakening value of a bond rating.