PORTLAND, Maine — The city of Portland announced Thursday that two of the nation’s top rating agencies have given the municipality high marks for economic stability.
The announcement about Maine’s largest city comes on the heels of news that another key agency downgraded its rating for the state government, partly because of what it called the “contentious decision-making environment” in Augusta.
State Senate President Justin Alfond, a Democrat from Portland, said the state government can take some lessons from his home city. But a top Portland Republican countered that municipal and state credit ratings are “apples and oranges.”
According to a Thursday news release from the city of Portland, Moody’s Investors Service assigned the city a bond rating of Aa1, while Standard & Poor’s Ratings Services tagged the city with an AA ranking. Both agencies gave Portland an outlook designation of “stable.”
Moody’s in 2012 gave the state government a rating of Aa2 with an outlook of “negative,” while Standard & Poor’s assigned the state a AA rating with a “stable” outlook.
More recently, the agency Fitch Ratings made headlines by downgrading the state government’s bond rating from AA-plus to AA, citing in its report regular revenue shortfalls and partisan debate about state spending and bonds.
“What I think Portland is doing right is you have a leadership team — headed by the mayor, a strong staff and the city council — that is making thoughtful financial decisions and are managing the cuts and investments very wisely,” Alfond said Thursday. “The city understands that in order to sustain itself and grow in a tough economic climate, it must make some cuts, but also make some investments in education, transportation and other programs that improve the quality of life for the people of Portland.”
Alfond and his fellow Democrats have clashed with Republican Gov. Paul LePage on the subject of bonds. LePage long refused to sign off on any additional borrowing by the state government until he felt the state was on stronger financial footing, while many Democrats lobbied for the issuance of voter-approved bonds for road and highway repairs, or research and development projects, among other things.
More recently, the governor has offered to release $105 million in voter-approved bonds if the Democratic-controlled Legislature approves his plan to fund construction of a prison and pay back hundreds of millions in hospital debt.
That atmosphere in Augusta was described by Fitch as “contentious,” and the agency reported that the rancor played a role in its downgrading of the state’s bond rating.
But while Alfond highlighted what he called Portland’s sound investment practices in the face of economic uncertainty, Republican Patrick Calder countered that there’s a high cost to those investments. Calder is a former chairman of the Portland Republican City Committee and lost a close primary to represent the party in the 2012 1st District congressional race.
“It’s baffling to me that we could spend money or borrow money that we don’t have,” Calder said. “There’s such a tendency to think of bonds as free money, and they’re not. You could have the best ideas in the world, and you reach a point where you can’t afford it. I think the governor is absolutely right to say, ‘No, can’t do that.’”
Calder said comparing the city’s bond rating to the state’s bond rating is faulty.
“It’s apples and oranges,” Calder said. “It’s much easier to keep a city afloat than it is to keep the state of Maine, which as a whole is a very rural, poor state.”
Charles Colgan — economist with the University of Southern Maine’s Muskie School of Public Service and a former head of the state’s economic forecasting commission — said that while Portland’s bond rating and the state’s bond rating cannot be expected to rise and fall in correlation, they are tied together in some ways.
Moody’s cited proposed state budget cuts to municipal revenue sharing, general assistance programs for the poor and homeless, and education subsidies as financial challenges affecting Portland’s bond rating.
Likewise, the agency recognized the immense role Portland plays in the overall state economy. Portland’s $7.6 billion tax base is the largest in Maine, and its recent unemployment rate of 5.5 percent is lower than the state’s 6.7 percent and national average of 7.5 percent.
“As identified by Moody’s, there are some matters that are outside of the city’s control, specifically reductions in state aid,” Portland Mayor Michael Brennan said in a statement Thursday. “As the state’s economic and employment hub, it is crucial that we work with our legislative partners to ensure that Portland’s economy can continue to thrive as the entire state benefits from our growth.”
A government’s bond ratings play a role in the interest rate it pays on loans it takes out, which, in turn. affects the debt load it carries in each annual budget.
“The city or the state, with a lower bond rating, would pay a higher interest rate on money it borrows,” said Colgan on Thursday.
“Paying more in interest means we have less money to spend on something else. In the case of government, something else gets less money in the budget in order to ensure there’s enough funding to cover debt payments,” he continued. “In the Portland case, they’re probably saying that the income streams are sufficient to cover the debt service, so it’s a good bet to issue bonds to the city.”
The state-high for a municipality can reportedly be found in neighboring South Portland, where the city’s boasts a Aaa Moody’s rating and a Standard & Poor’s rating of AA-plus.
“To many bond buyers, it makes no difference at all between, say, a AA rating and a AA-plus rating,” he continued. “It may or may not matter to actual bond buyers. They’re the ones who make the ultimate judgment, not the [rating agencies]. In a time like this, with relatively flat, low long-term interest rates, the effect of a slightly lower bond rating is probably not going to be large at all. Rarely do these things have any effect on tax rates unless they reach catastrophic levels.”