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Credit rating lesson from Down Under

Despite Standard & Poor’s downgrade of the national credit rating, the federal government’s rating is still better than Arizona’s.

Our rating, AA-, is the same as Kentucky, Michigan and New Jersey. Not exactly states that are pictures of economic health. In fact, 44 states have a better credit rating than Arizona, including all of our regional competitors: Colorado (AA), Nevada (AA), New Mexico (AA+), Texas (AA+), and Utah (AAA). Only two states in the country have worse ratings, including California, which has the lowest rating (A-).

Arizona’s credit rating last changed in 2009 with a downgrade from AA. Last session, state lawmakers made some long-overdue strides to restore lost fiscal sanity.

Along with significant spending reductions, the state reformed its pension systems for government workers.
But bigger reforms are needed.

And a great example lies in the South Pacific.

Not that long ago, Australia was considered a fiscal banana republic by some of its own leaders. Today, that country has an AAA credit rating. One reason: moving most government employees out of a pension system like ours into a mandatory 401(k)-type system like that of most private businesses.

Defined-contribution, 401(k)-type systems avoid the pension abuses that have led government systems to the brink of collapse.

They also mean employees own their own retirement funds and control their own destiny – without concern
that elected officials might find ways to steal from their nest egg.

Importantly, taxpayers also benefit from knowing exactly how much employee retirements will cost them.
New government employees in Arizona need to be set up with a 401(k) retirement system. There is no better win-win reform in government employee retirement policy.

— Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

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