PORTLAND, Maine — The credit rating agency Standard & Poor’s assigned its second-highest rating to Maine bond debt, a decision expected by state officials in advance of selling approximately $115 million in new bonds.
The service reaffirmed its “AA” rating on Maine’s outstanding general obligation debt in a statement Friday, following a similar reaffirmation from Moody’s Investors Service. Moody’s upgraded its outlook on state finances to “stable” Wednesday. S&P had moved Maine’s outlook to stable in 2012.
The rating agency’s report said the state had a strong framework for repaying its debts and access to sufficient cash for its general fund but cautioned that higher-than-expected costs in the budget for MaineCare, the state’s Medicaid program, in fiscal year 2014 are a cause for concern.
“The stable outlook reflects our opinion that the state’s credit factors are relatively sound, although we believe it could face continued budget challenges, particularly with Medicaid, and also that it has limited flexibility from a slow economic recovery and minimal reserve levels in its budget-stabilization fund,” the report states.
It also notes that reforms credited with reducing the state’s unfunded pension liability by 41 percent may still face legal challenges through an appeal three state employee unions filed last year, opposing the Legislature’s elimination of cost-of-living increases for retirees in 2011.
That case was decided in U.S. District Court in Maine last summer and was appealed to the First Circuit Court in Boston in January, according to court records. A decision on the appeal is pending.
Maine State Treasurer Neria Douglass said there were few surprises in the credit rating agency’s report.
“It was a bit more than we could hope for to get an upgrade there,” Douglass said, regarding the S&P rating. “To get to the next level would require some more significant growth.”
Douglass said the ratings will be a factor in the state getting good bids from investors when it takes its debt to auction next week.
The general obligation bonds will support a variety of projects, such as highway and bridge construction. The sale of the bonds will reduce the amount of authorized but unsold bonds the state has on its books to around $139 million, from $254 million.
Some projects under the authorized bond amount have already started with advanced payments from the state treasurer’s cash pool, which will be replenished upon sale of the bonds.
In addition to the S&P and Moody’s ratings, other market factors will likely have a larger sway in the state’s interest costs for the bonds, Douglass said.
“The price we get is determined by the market as much by the rating,” Douglass said.