Maine Election Info

Take our opinions quiz | Find the candidates on your ballot

Compromise bond agreement may affect state's credit rating

Posted April 12, 2010, at 8:47 p.m.

AUGUSTA, Maine — Participants in the weekend negotiations that crafted the compromise bond package worried about its impact on the state’s credit rating as they removed $7 million from the state reserves.

The removal came just weeks after trumpeting the addition of the cash to the reserves as a way to maintain the state’s credit rating.

“That was a major part of our discussions,” Rep. Emily Cain, D-Orono, said. “It was well-discussed, but we think the change in the cascade language will help with the bond rating firms as they look at us again.”

The cascade is the provision in state budget law that distributes any surplus at the end of a budget year.

The language change in the bond law takes the first $7 million of extra cash and puts it in the reserve fund to replace the money appropriated to help buy the tracks of the Maine, Montreal & Atlantic Railroad.

The measure also authorizes a $7 million bond that will go to the voters in June to pay for part of the track acquisition.

Sen. Bill Diamond, D-Windham, the other co-chairman of the Appropriations Committee, agreed with Cain that the earmarking of revenue surplus for the rainy day fund should help alleviate the concerns expressed by a rating firm last month.

“I think this should show them we are working to build up our reserves,” he said.

The governor and lawmakers first became concerned when the Standard & Poor’s Rating Service revised its outlook on Maine Governmental Facilities Authority bonds from stable to negative. That change could lead to a downgrading of the state’s credit rating.

Gov. John Baldacci agreed the issue was well-discussed during the negotiations and he believes the credit rating agencies will understand the nature of a political compromise that uses cash to pay for part of the purchase of the rail line assets.

“We are immediately replacing the cash in the stabilization fund at the end of the [budget] year,” he said. “There will be the money there to do that; we are running $26 million ahead in the tentative March revenue numbers.”

Baldacci said maintaining the state’s credit rating and reserves always have been high priorities of his administration.

“I feel very strongly about building up that reserve, and I am committed to building that up,” he said.

Finance Commissioner Ryan Low said he expects the March numbers to hold, and that will bring the year-to-date revenue surplus to $33 million. The state budget year ends June 30.

But some Republicans are not as sure that the state’s fiscal actions will be viewed as positively by the rating firms.

Sen. Richard Rosen, R-Bucksport, said the bond rating firms look at a number of factors when they determine credit ratings for states including cash reserves, budget status, and ability to pay debt.

“This level of bonding exceeds what is reasonable,” he said. “This will add to the cliff we already have in the next biennium.”

He said the next Legislature and governor will face a budget gap of more than $1 billion as federal stimulus funds end and the costs of government continue to grow.

He said the bonding and the reduction in state reserves are among the factors the rating firms are likely to look at before bonds again go on sale in June.

“The S&P report talks about what the state could do to avoid a downgrade,” he said. “They talked about the need to have a plan to address what happens when the federal stimulus funds end. We don’t have that and what we have done with this package is increase the problem for the next governor and Legislature to solve.”

The next sale of state bonds is expected in June before the end of the budget year. The bond rating firms then will weigh in with their opinion on whether the state is meeting their standards to continue at it’s current ratings.

SEE COMMENTS →

ADVERTISEMENT | Grow your business
ADVERTISEMENT | Grow your business

Similar Articles

More in Politics