We're AAA-rated: why the highest-level bond rating is important to Indiana.

• Author: Hicks, Michael
• Position: INDIANA INDICATORS

SOMETIMES OBSCURE economic issues matter a great deal in our economic wellbeing. One prime example is the news that Indiana's bond rankings have now risen to the highest level, the highly coveted AAA ranking by Standard and Poor's. Why that happened, what it means and why it is important should matter to Hoosiers.

To begin with, all states, like virtually all households, borrow money to ease cash flow issues. States also borrow money to make infrastructure investments. Just like households, government essentially takes out a mortgage on big durable things like roads and bridges. The only meaningful difference is that governments borrow their money not from a bank, savings and loan or credit union, but from a bond market.

Bond markets are the first to signal economic changes by bond sellers. They are the canary in the coal mine, for the very good reason that they hold long-term securities backed only by the promise to pay (and perhaps an insurance policy). So markets for state and municipal bonds tell the story of a regions' economy far more accurately than any advertising campaign. This is why Hoosiers should be rejoicing at the news that our state has received an AAA ranking.

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Bond-rating agencies clearly liked what they found in Indiana. Our nation-ally recognized property tax reform, the robust budget surplus (one of the few in the nation) and the dogged resilience of our state's economy all factored into the new bond ratings. Several studies suggest we will save over 10 basis points in borrowing costs. This means a savings to taxpayers of at least $500 million over the next...