Moody’s Investors Service downgraded the state’s bond rating a notch on Tuesday citing the state’s lack of available cash to get it through the fiscal year without short-term borrowing.
Moody’s also didn’t like that the state was floating revenue bonds to balance its budget or that a citizen’s initiative is in the works that could suspend that borrowing and leave the state short $250 million. The rating service also noted the state’s economic recovery could be slowed by the loss of 7,000 jobs due to likely military base closures.
The rating went from Aa2 to Aa3.
Rebecca Wyke, the governor’s finance commissioner, said the borrowing and the people’s veto campaign to overturn it exacerbated the problem, but the real issue was cash flow.
“Even if we fixed it (the borrowing)…the real issue is the cash position of the state,” Wyke said.
She said the state has to use tax anticipation notes throughout the year to pay the bills as it waits for revenue to come in. Cash reserves of nearly $138 million before the 2001 recession evaporated and are just now being built back up to around the $50 million level.
Rep. Joshua Tardy, R-Newport, the assistant minority leader in the House, said the bond rating announced Tuesday was a sign that things need to change.
“We need to take positive steps going forward to reduce the structural gap and our runaway spending,” he said.
The rating downgrade could affect how much Maine pays in interest to float its general obligation bonds. Wyke said there is a potential cost of $100,000 over the 10-year life of a $142 million general obligation bond due to be floated in June. It is possible, however, that it would have no impact since the state is known to be a good credit risk, Wyke said. The state had asked the other rating houses – Fitch and Standard & Poors – to issue their ratings prior to the floating of those bonds and they likely will be issued before the end of the month. Fitch currently rates Maine AA+ and Standard and Poors gives it AA.
Moody’s had warned the state of a possible downgrade earlier this year, again citing cash flow issues. One of the big problems is the state has been facing structural gaps in its two-year budgeting cycles, meaning there is not enough revenue coming in to pay for the current level of government services. Short-term fixes, like the selling of the state liquor business in the last cycle and the proposed borrowing in this cycle are discouraged.
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