One of the country’s largest rating agencies on Wednesday affirmed a negative outlook on Maine’s credit rating.
Moody’s Investors Service on Wednesday affirmed the state’s Aa2 rating on the state’s outstanding general obligation bonds, which are approximately $472 million, and gave it a negative outlook.
However, an Aa2 rating is not bad. It’s the third highest rating and those bonds are “high quality and are subject to very low credit risk,” according to Moody’s.
The rating agency gave the state a negative outlook because of “recurring spending challenges, primarily in the Department of Health and Human Services, which includes the state’s Medicaid budget; minimal rainy day fund balances and chronically negative GAAP-basis combined available reserves; and a weak General Fund liquidity position reflecting the lack of reserves.”
Moody’s first gave Maine’s general obligation bonds a negative outlook last May.
It did note some of Maine’s strengths, including “historic budget-balancing actions,” “below average debt ratios” for personal and per capita income, and the fact the state’s “pension funded ratio improved following reforms and recent investment performance.”
“Given our situation at present, I think it’s good news that this has been affirmed, but we still have a lot of moving parts going on in our budget and some unknowns in terms of our economy,” State Treasurer Neria Douglass told the Bangor Daily News on Wednesday.
Last week, Standard & Poor’s Ratings Services affirmed an AA rating on the state’s general obligation bonds, noting that “Maine has made very limited progress in shoring up its economy and finances since the end of the Great Recession.”
Next week, the Maine Governmental Facilities Authority plans to issue a $29.15 million lease rental revenue bond to fund construction of a new courthouse in Augusta and renovations to a courthouse in Machias. Moody’s assigned that bond sale a rating of Aa3, which is one notch lower than the general obligation bond rating of Aa2, along with a negative outlook. That assignment isn’t surprising, according to Douglass, as it’s strongly tied to the state’s general obligation bond rating. The rating shouldn’t affect the cost of borrowing for the state.
“The one notch distinction from the general obligation bond rating (Aa2) reflects the subject-to-appropriation nature of the lease rental bonds,” the Moody’s release states.