CHICAGO -- Moody's Investors Service on Tuesday upgraded the South Dakota Building Authority's $234 million of outstanding lease-revenue debt to A1 from A, marking the agency's first upgrade of a state since last September.

That was when Moody's raised Arkansas's outstanding general obligation debt to Aa from A1, according to Catherine Fleischmann, an assistant vice president for state ratings at Moody's.

Meanwhile, Standard & Poor's Corp. yesterday affirmed its A-plus rating of the building authority's debt, according to Joseph O'Keefe, a vice president.

South Dakota does not issue GO debt. Instead, lease-revenue bonds issued by the authority and backed with annual lease payments by the state are the primary debt-financing method for capital construction.

Ms. Fleischmann said the Moody's upgrade was prompted by improvements in the South Dakota economy and the state government's finances since the agency lowered the building authority's debt to A from A1 in 1987.

"The farm economy has stabilized since 1987," she said. "We know there will still be cyclical changes, but the state also has taken some steps to diversity the economy."

She cited increases in food processing and credit card operations jobs as evidence of new diversity in the state's economy.

Ms. Fleischmann also said the Legislature's approval this year of a mandated state budget reserve was also important to the upgrade. And the state began the fiscal year on July 1 with a $20 million budget reserve out of a $518 million general fund budget.

"It gives you more of a cushion when there are hard times," Ms. Fleischmann maintained.

Jim Hill, the state's budget director, said creating a budget reserve fund, also called a rainy-day fund, was a key goal for Gov. George Mickelson earlier this year during the state's budget process.

"The lack of a rainy-day fund was something that the rating agencies talked about when we were downgraded," he said. "It was a tough sell, because people like to spend money if they have it."

The upgrade came after Gov. Mickelson, state officials and the state's financial adviser, First Chicago Capital Markets Inc., last week met with rating agency officials in New York City to review a $6.2 million building authority bond issue scheduled to be priced next week.

Mr. Hill said state officials thought the time was ripe for seeking an upgrade of the building authority's debt.

"We though we had a pretty good story to tell, that we'd made some real progress in the last few years," Mr. Hill explained. "We recognized that the tide had been going the other way with other states, so our experience might look good to the agencies."

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