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Budget
woes put Virginia’s top credit rating at risk
Related
links:
- A
Split Decision?
by Garry Kranz
For
Virginia Business
January
2004
Virginia
has reason to be proud of the AAA credit rating conferred
by Moody’s Investors Services in 1936. For 67
years, it has enabled Virginia to win favorable borrowing
terms for loans. Only five other states earned the coveted
distinction.
But
Virginia could lose its top credit mark with Moody’s
unless legislators come up with ways to brighten the
commonwealth’s financial picture in 2004. New
York City-based Moody’s last year put Virginia
on its watch list, citing “significant deterioration”
in its balance sheet. The move is a possible precursor
to downgrading Virginia’s bond rating.
Two other states placed on the watch list, Minnesota
and Michigan, lost AAA bond status last year. The possibility
that Virginia could be next “looms large in my
eyes,” says Sen. John Chichester (R-Stafford County),
chairman of the Senate Finance Committee.
Virginia’s tenuous hold on its Moody’s rating
worries business leaders, too. The AAA rating signifies
sound financial management, so losing it tarnishes Virginia’s
reputation as a well-managed state for business. Not
to mention that Virginia would be subject to paying
higher interest on borrowing for capital projects, such
as colleges, roads and other public amenities. “If
we cut state government spending and it ends up costing
Virginia her bond rating, then it will cost far more
in the long term,” says Heywood Fralin, a Roanoke
real estate developer.
Moody’s action stems from concern about Virginia’s
ongoing revenue shortages and its need to replenish
reserves. Lawmakers need to cut about $1.2 billion from
the next two-year budget. That’s on top of $6
billion slashed from the previous biennial spending
plan. Moody’s cited the car-tax repeal and the
fallout from Northern Virginia’s tech crash as
key factors in its decision. The plundering of the state’s
Revenue Stabilization Fund – more commonly known
as its “rainy day” fund – didn’t
help. Nearly $130 million was withdrawn to balance the
last budget.
It’s not clear how Moody’s stance will affect
Virginia’s status with two other leading credit
houses. Standard & Poor’s and Fitch’s
both have maintained AAA ratings for Virginia thus far.
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