It would be easy to be fooled by this one. After all, the bond rating agencies consider Texas to be one of most financially strong states. “Debt ratios on both a per capita and personal income basis that are well below Moody's 50-state medians,” Moody’s stated Monday on a short-term bond issued by the Texas Public Finance Authority (TPFA). So, was it the weakness of the state of Texas when Fitch attached “rating watch negative” to the same short-term note Monday afternoon? No. That “negative” outlook is a reflection of United Kingdom-based Barclays Bank PLC — not the state of Texas. The private bank provided the liquidity for the TPFA short-term bond with a capacity of up to $110 million. Barclays was one of seven banks — five in Europe and two in the U.S. — to be downgraded by Fitch in mid-October. That stemmed from “economic developments, particularly in the euro area, as well as a myriad of regulatory changes,” Fitch wrote then.

TPFA Interim Executive Director Susan Durso said the short-term bonds will help state agencies pay for some capital expenses in the new biennium. Durso said the comptroller typically provides the liquidity for the short-term notes, but did not do that this time. That wasn’t an unusual occurrence either. R.J. DeSilva, spokesman for Comptroller Susan Combs, said the comptroller’s office has $1.63 billion in bonds out now. He said the comptroller chose to let something go for private bank liquidity and it happened to be the TPFA short-term notes. DeSilva said the TPFA continues to have liquidity backing from the comptroller for $460 million in bonds for cancer research and the windstorm agency. Durso also said Standard and Poors did not downgrade the TPFA short-term bonds because Barclay’s was the private bank.

Moody’s identified the following as strengths for Texas: • A diversifying but still energy-reliant economy that is expected to continue to grow faster than the nation, including sales taxes that have increased on a year-over-year basis in each of the past 19 months. • Conservative revenue forecasting that is an established part of the budget process, which traditionally has provided a buffer when revenues contract, and a rainy day fund that provides a sizeable available cushion to help close budget gaps. • Debt ratios on both a per capita and personal income basis that are well below Moody's 50-state medians.

Moody’s identified the following as challenges for Texas: • Pressure to maintain a balanced financial position, even amid ongoing revenue growth, as national economic uncertainty continues. • The ongoing affordability of the current school finance plan, even following large cuts in the current biennium's budget. • A growing population that has relatively high poverty levels and substantial needs for public services.