Aging Population, Slow Economic Growth Cost Vermont Its Triple-A Bond Rating

Oct 23, 2018
Originally published on October 25, 2018 8:50 am

The state of Vermont’s sterling reputation on Wall Street took a modest hit Tuesday when Moody’s Investors Service downgraded the state’s general obligation bond rating.

Citing the state’s unfunded pension obligations and aging demographics, Moody’s lowered Vermont’s bond rating from Aaa, its highest ranking, to Aa1, the second-highest designation.

Analysts at Moody’s said the downgrade was related to “an economic base that faces low growth prospects from an aging population.”

“At the same time, the state's leverage, measured by debt and unfunded post-employment obligations relative to [gross domestic product], is high among states and especially so among the highest rated states,” Moody’s wrote in a press release announcing the ratings downgrade. “With slower than average growth, Vermont's long-term liabilities will weigh more heavily on its economic base and may manifest in growing cost pressures.”

State Treasurer Beth Pearce said Tuesday that Vermont’s long-term pension liabilities, aging population and slow economic growth are a real concern for the state.

Pearce said, however, that the Moody’s report also highlights areas of financial strength for Vermont.

Moody’s cited the “underlying health of Vermont's economy, a stable and solid financial position, and strong management and governance of state fiscal matters” in its release Tuesday.

And with the second-highest bond from Moody’s and Standard & Poor’s, and the highest possible bond rating from Fitch Ratings, Vermont still lays claim to the highest bond rating of all New England states, according to Pearce.

“I am confident that the Governor, General Assembly, and my office will partner with other state and local officials to address our shared challenges,” Pearce said in a written release. “We must focus on regaining our Aaa rating and achieving a triple-A rating from all three rating agencies as we work together to improve the economic prosperity of all Vermonters.”


Moody’s said in its release that Vermont could restore its triple-A status if it sees “improved demographic and economic trends that more closely track those of the nation and other highly rated states.”

In a written statement issued Tuesday afternoon, Gov. Phil Scott said the aging demographics and unfunded retirement obligations that spurred the ratings downgrade are Vermont’s “most significant economic and budgetary challenges.”

“As I’ve noted for the last several years, we have to do more to retain and recruit working age families by focusing on affordability, reducing barriers to organic wage growth and job creation, and strengthening state government’s fiscal foundation,” Scott said.

The governor also said in his statement that he looks forward to working with lawmakers to “change the economic and demographic trajectory of our state.”

Copyright 2018 Vermont Public Radio. To see more, visit Vermont Public Radio.