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State’s bond rating lowered on poor business performance, economy
Standard & Poor’s calls Palmetto economy ‘weak’
By Matthew French
Staff Writer
Last month Standard & Poor’s Rating Services, the nation’s largest rating agency, announced that it had lowered South Carolina’s bond rating from AAA to AA+, citing the Palmetto State’s “weakened economic position” and above average unemployment as the reasons for the drop. The move marks the first time in five years that Standard & Poor’s has lowered a state’s bond rating.
South Carolina went from being among the elite few with the AAA rating, the agency’s highest, to AA+, which drops it into the next tier that includes five other states. The move means the state will pay marginally higher interest rates on its general obligation bonds because of slightly higher risk factors.
When bond ratings are set, ratings services take into account such factors as the overall economy of the state, the state’s debt structure, financial condition, demographic factors and management practices of the governing bodies.
“The rating action reflects the state’s weakened economic position that is no longer commensurate with the ‘AAA’ rating category,” says a statement issued by Standard & Poor’s.
The July 11 announcement left South Carolina’s businesses looking within for a solution to the problem.
The direct impact on local and statewide businesses will likely be minimal, but the fact that Standard & Poor’s points directly to relatively slow economic and job growth in the state reflects poorly on businesses’ overall performance during the past several years.
Small businesses and some small business advocacy groups question the timing of the move, saying the state Legislature has recently passed legislation to address some of the issues brought forth by Standard & Poor’s and say businesses have a generally bright view of the future.
“The Legislature passed the jobs creation bill and lowered the corporate income tax rate. Companies can, and will, take that money and reinvest it in workforce development,” says Jim Brown, communications manager for the National Federation for Independent Business, a nationwide small business lobbying group.
“The lowering of the rating is not a big concern for small business directly, but considering that Standard & Poor’s is talking about anemic job growth, it is, in effect, a report card on how business in general is doing in South Carolina. We certainly don’t want this to become a trend.”
Standard & Poor’s cites the state’s decline in textiles manufacturing and agriculture-related jobs, saying they have weakened the overall employment base.
“South Carolina’s economic growth has been sluggish following the recession, especially in comparison with other AAA-rated Southeastern states,” says Eden Perry, Standard & Poor’s credit analyst.
“In addition, the state has not returned to its pre-recessionary levels of employment.”
While agriculture and textiles manufacturing may have been hit hard in recent years, other industry sectors are proceeding at a record-setting pace, according to Evelyn Perry, who owns Carolina Sound Communications, Georgia Sound Communications in Savannah, and Sound Communications, which is located in Charleston.
“I think the assessment by Standard & Poor’s is a little crazy; I’m sitting here with three job openings that I can’t get filled,” she says. “The problem is not that there aren’t jobs out there for the unemployed to take, it’s that they either aren’t skilled enough workers or they’re not looking in the right place. I’ve had these openings since January for technicians, and we’re not talking about engineers, just some people with a little background and experience from a technical school or the military.”
Her business, which provides audio and video equipment and services, as well as alarms, access control and closed-circuit systems, deals with every type of business, new, existing and expanding, she says.
The region her companies cover includes everything along coastal South Carolina from Myrtle Beach down to Georgia and inland to Orangeburg and Columbia. The regional economies throughout the state are better than Standard & Poor’s would indicate, she says.
“I have an eight-week backlog of work, and I think that if you could judge the regional economy by any business, you could do it by ours,” she says.
“This is the best year we’ve had by a lot. If this (rating drop) had happened two years ago, I might have agreed with the assessment because we had more businesses with which we were doing business closing and filing for bankruptcy. But not now.”
Matthew French covers financial services for the Business Journal. E-mail him at mfrench@charlestonbusiness.com.
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