It was not a surprise when Moody’s Investors Service lowered Maine’s rating outlook on some bonds recently. The problems the credit rating agency listed are familiar: The state is limited in its ability to meet unexpected shortfalls and its weak demographic profile may slow revenue growth in the future.
Another rating firm, Standard & Poor’s, already has acknowledged the state’s challenges. It revised Maine’s rating outlook to negative in March 2010. The decisions have been an affirmation of what legislators already should know: that the state does not have enough revenue for its amount of spending, it owes hospitals Medicaid reimbursements and its liquidity is weak, meaning it may have problems converting assets into cash quickly.
This is a good time for state officials to emphasize a plan for growth before the ratings themselves slip. Though Moody’s revised its outlook to negative from stable, it maintained the state’s Aa2 credit rating — the agency’s third highest. S&P will likely release its updated outlook in the coming days before the state sells bonds to investors to fund projects such as road and bridge construction, as it typically does in the late spring.
No one expects improvements to be developed rapidly, but it’s important to see a continued, concerted effort. Having legislators and state employees work collaboratively toward specific goals is not a matter of political affiliation or too few ideas but one of leadership. Both parties must work together to help direct sustainable business growth, streamline development rules, trim government effectively and compassionately and support investment in innovative, job-creating disciplines.
Moody’s decision does not have a direct financial impact. The firm did not downgrade Maine’s rating, which would affect the state’s borrowing costs. Rather, it addressed the outlook of the rating and speaks to long-term, future trends. Also, credit rating agencies have been widely criticized for understating the risks of mortgage-backed securities during the economic crisis.
But receiving this second negative rating outlook calls out for a responsible response — not to appease credit rating agencies but for the long-term well-being of Maine people. Moody’s has already laid out what needs to be done. It says to establish a trend of structural budget balance; no more budget shortfalls. It wants to see evidence of stronger economic performance, improved general fund cash margins and sustained pension funded ratios.
Some of those steps have begun. The state’s pension funded ratio rose from 66 percent in 2010 to 77 percent in 2011. A recent budget shortfall at DHHS was resolved. Debt is scheduled to be retired rapidly within 10 years. The state’s debt ratios are below the national median. And Maine’s unemployment rate is below the national average and declining.
The state is poised for improvement, which will involve gradually and predictably lowering taxes and growing a large rainy day fund. State services will need to be provided more efficiently, as was outlined in the separate budgets prepared by Republicans and Democrats. Whatever decisions the Legislature makes in the future should fit into a long-term picture of development that will allow people to remain in the state, so they may pursue meaningful lives and careers. All types of education will play major roles in improving the economy.
One of Moody’s suggestions was for state officials to provide a clearly articulated plan. We’re listening.