Moody’s Ratings has raised New Mexico’s credit rating from Aa2 to Aa1. This upgrade could help the state borrow money at lower interest rates and attract more investors to buy its public debt.
The upgrade wasn’t just for one good year. In an opinion column, state Sen. George Muñoz and DFA Secretary Wayne Propst said it reflects years of work to make state finances less tied to oil and gas. They wrote that a rating upgrade means “a sustained record of fiscal discipline and structural reform,” not just a temporary improvement.
Moody’s, as quoted by the Albuquerque Journal, said the upgrade is due to better governance and less dependence on unpredictable severance taxes. In its announcement, Moody’s said the state’s “well-established and prudent governance practices” have “partially mitigated its reliance on volatile severance taxes.”
Crucial facts
- Rating action: Moody’s upgraded New Mexico’s issuer rating to Aa1 from Aa2.
- Why it matters: Higher ratings can help reduce interest costs on future infrastructure and other project borrowing.
- Core driver: Policymakers have directed more surplus energy revenue into permanent and trust funds to smooth boom-bust budgeting.
- Related upgrades: The DFA says Moody’s also raised ratings on GO bonds, transportation tax bonds, severance tax bonds, and the school district intercept program.
- Key risk to watch: State officials cautioned that rating agencies will track New Mexico’s ability to handle potential federal funding reductions, including Medicaid-related pressure.
What Moody’s is rewarding: a shift from volatile revenue to recurring income
New Mexico’s finances have often depended on energy markets. When oil and gas prices are high, revenue rises, but it falls when prices drop. The Muñoz and Propst column says the upgrade shows the state is working to change this by turning extra revenue into long-term assets instead of spending it immediately.
One important policy is Senate Bill 26 (2023). This law limits swings in severance tax revenue and puts extra money into the Severance Tax Permanent Fund. This means some of today’s energy money is saved and invested to help future budgets.
The column provides specific numbers: about $588 million will be invested in FY2025, over $1.2 billion in FY2026, and around $1.7 billion in FY2027.
The Albuquerque Journal also reports that permanent funds and trust funds have grown during years with extra cash. The state’s permanent funds reached about $64 billion as of the summer mentioned in the article.
The practical impact: borrowing costs, infrastructure strategy, and economic messaging
A state’s credit rating affects how investors judge risk. Higher ratings usually mean lower interest rates when the state borrows money, which can make building things like roads and schools cheaper in the long run. The Journal says the upgrade “could lead to lower borrowing costs for infrastructure projects” and might also boost the state’s “economic appeal.”
According to the Journal, New Mexico has used more cash for big projects in recent years instead of taking on more debt. This helps the state keep its borrowing power and lowers future interest costs.
The DFA press release says Moody’s praised both the state’s careful management and its work to depend less on oil and gas revenue. The state has also grown its permanent funds, which now bring in investment income.
What could challenge the upgrade: energy dependence and federal policy pressure
Even though the state is trying to diversify, energy still accounts for a large share of New Mexico’s income. The Journal says recent revenue growth came from more oil production in the Permian Basin, and New Mexico is now the second-largest oil producer in the country after Texas.
Moody’s and state officials also warned about risks from federal policy. The Journal mentions “looming federal funding reductions” that could impact rural hospitals and Medicaid. The DFA press release also points to outside pressures from federal policy changes and cuts to Medicaid eligibility starting in 2027.
In short, the upgrade shows New Mexico’s finances are stronger now. But keeping this rating will depend on how the state handles slower revenue growth, changes in energy markets, and possible cuts in federal funding.