Moody's Affirms Indiana's Aaa Issuer Rating Despite Fiscal Challenges

Strategic Insights -

Moody's Investors Service has affirmed the State of Indiana's Aaa issuer rating, citing the state's strong fiscal governance, conservative liability management, and high reserves. The outlook is stable, but the state's dependence on international trade and potential federal policy actions pose risks to its creditworthiness. Despite these challenges, Indiana's proactive budget management and structural reforms have positioned the state for fiscal stability.

Key Takeaways:

  • Moody's has affirmed Indiana's Aaa issuer rating, with a stable outlook, reflecting the state's high reserves, low leverage, and strong fiscal governance.
  • The state's biennial budget for fiscal years 2026 and 2027 is structured to maintain GAAP-basis available fund balances above 30% of revenue, even under a scenario of little to no revenue growth.
  • Indiana's trigger law to end its Medicaid expansion program if federal funding is reduced makes the state less exposed to federal Medicaid cuts.
  • The state's adjusted total long-term liability ratio is expected to remain below 50% of revenue and fixed costs at less than 5% of revenue, both of which are very low.
  • Indiana's economy is highly reliant on manufacturing, exposing it to potential disruptions from federal tariff and trade policies.
  • The Aa1 and Aa2 ratings on lease appropriation, highway revenue, and facilities revenue bonds reflect the contingent nature of the obligations and the essentiality of the leased projects.
  • The Aa1 rating on the Indiana School District Intercept Program is one notch below the state's issuer rating due to the state's statutory commitment to intercept school aid and pay directly to a fiscal agent.

Statistics:

  • Indiana's population is the 17th largest among the 50 states, with 6.9 million residents in 2024.
  • Indiana's GDP is the 19th largest among the 50 states, with $527 billion in 2024.
  • The state has a high degree of chemicals, steel, and auto manufacturing, with potential exposures to federal tariff and trade policies.
  • The state's adjusted total long-term liability ratio is expected to remain below 50% of revenue.
  • Fixed costs are expected to be less than 5% of revenue.
  • The state's biennial budget for fiscal years 2026 and 2027 is structured to maintain GAAP-basis available fund balances above 30% of revenue.

Sources:

  • Moody's Investors Service, "US States and Territories" (July 2024), available at https://ratings.moodys.com/rmc-documents/425428
  • Moody's Investors Service, "US State Aid Intercept Programs and Financings" (February 2024), available at https://ratings.moodys.com/rmc-documents/415020
  • Moody's Investors Service, "Rating Methodologies" page, available at https://ratings.moodys.com