Maine receives mixed report on credit rating

Posted May 21, 2010, at 8:12 p.m.

AUGUSTA, Maine — Three credit rating agencies have given their opinion of the state’s credit, with two giving the state high marks. But one continues to keep the state on a “negative watch” list saying the state has not set aside enough cash in reserves to meet unexpected needs.

“Maine’s financial position declined significantly in fiscal 2009 to a weak position, in our view,” wrote Standard & Poor’s in its analysis released late Thursday. “The state’s stabilization fund was essentially fully depleted during the year, leaving a balance of less than $200,000 down from $128.9 million at the end of fiscal 2008.”

Nonetheless, S&P gave the state a rating of AA-, its fourth highest credit rating out of 10.

Moody’s Investor Services continued the state at its third highest rating, Aa2, for the $58.2 million bond sale scheduled for Monday. The third credit rating, from the National Association of Insurance Commissioners’ Securities Valuation Office, was NAIC-1, the highest given by the organization.

“Standard & Poor’s raised four or five issues and we felt we had not only addressed those issues, we went further,” said Finance Commissioner Ryan Low.

He said the agency had urged swift passage of a budget, and that happened with bipartisan support. He said it had urged an increase in the state reserve accounts and those and other concerns were addressed at a meeting early this month with S&P.

“At the end of it, it felt a little bit like Charlie Brown,” he said. “We are getting ready to kick the ball and at the last minute they yank it away and move the goal posts.”

State Treasurer David Lemoine shared Low’s frustration with S&P.

He said it appeared S&P was more concerned with “the beauty of the balance sheet” than the state’s ability to pay the debt it incurs with a bond sale. He said as noted in the NAIC report, Maine has a constitutional obligation to pay voter-approved debt before any other expenditure.

“From the bond investor’s position, you cannot get a stronger promise that the debt will be paid,” he said. “I think that should carry more weight in the rating process.”

Lemoine said one reason he sought out the NAIC rating was that it put the emphasis in its analysis of creditworthiness on the requirement to pay a debt as well as the capacity to pay debt. He said the organization is a nonprofit set up by the nation’s state insurance commissioners to rate securities that insurance companies buy as part of their investment portfolios that are approved by the insurance regulators.

“I have written other state treasurers about our first-in-the-nation effort,” he said. “I hope others will look at this approach.”

Low said the state paid about $20,000 each for the ratings and did incur the expense of a half dozen officials traveling to New York for the meetings with the agencies. Lemoine said investors want the assurance of an independent rating of a bond before investing, so the state will continue to incur the cost of the ratings services as bonds are marketed.

Lawmakers have mixed opinions about the ratings. Sen. Bill Diamond, D-Windham, co-chairman of the Appropriations Committee, agreed with Low and Lemoine and expressed frustration at the S&P rating, arguing the state should have been removed from the watch list.

“We on the committee and the Legislature as a whole did a lot to address the concerns they had raised,” he said. “I really think we did a good job at addressing the concerns they had raised.”

But Sen. Richard Rosen, R-Bucksport, the GOP senator on the panel, said he was not surprised S&P kept Maine in the negative watch category.

“We did take important steps,” he said. “But the fact remains that it will take some time before we are in a position, in my opinion, to be removed from the watch list.”

Rosen said as S&P stated in its report, the state has not had the operating cash levels that are needed for an organization that takes in and spends billions of dollars a year. He said the state needs to see more people working and significantly improved revenues before he expects the watch status will be removed.

But he agreed with Lemoine that the watch status likely won’t affect the interest rate the state has to pay when the bonds are sold.

“Maine bonds have always sold well and I think that will continue,” Rosen said. “That does not mean we should not pay attention to the watch list.”

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