Governments — from sovereign nations to states and localities — are measured on their ability to manage their finances and pay back what they owe. In issuing credit ratings, agencies such as Standard & Poor’s 500 index evaluate criteria such as financial management, budgetary performance, and debts and liabilities.
S&P 500 assesses the creditworthiness of each state by looking at the framework of state government and the state’s economy. Various measures are added up, and the state receives a credit rating, which could be as high as a perfect AAA, and continues down through AA, A and A-. A state with one of the lower ratings will find that it will cost more to borrow money through the sale of bonds, and economic growth may be constrained in the future.
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