Fitch cuts Maine credit rating because of budget gap, ‘contentious decision-making environment’

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Slipping state revenues, persistent budget gaps and “an increasingly contentious decision-making environment” have led one of the nation’s three main credit rating agencies to downgrade Maine’s general obligation bond debt a notch, to “AA” from “AA-plus.”

The downgrade by Fitch Ratings reflects the agency’s assessment of the state’s $472 million in general obligation bond debt. Fitch this week also cut its rating on $1.4 billion of Maine Municipal Bond Bank general resolution bonds to A-plus from AA-minus.

The rating downgrades came as part of a routine surveillance process, Fitch said.

In its rating statement, Fitch cited continued budget pressures as a result of state revenues that have come in below earlier expectations and a $100 million shortfall that has developed in the state’s Medicaid program. Fitch noted that Gov. Paul LePage’s proposal for balancing this year’s budget relies largely on digging into state reserves, a move that could affect the state’s ability to react to future budget challenges.

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The rating agency also noted that Democrats took control of both chambers of the Legislature in November, “raising the likelihood of increased conflict with the Republican governor over the supplemental budget and the biennial budget.”

LePage so far has refused to meet with the Democrats’ new legislative leadership. And last week, when LePage met with three independent House members who haven’t joined the chamber’s Democratic or Republican caucuses, the governor reportedly swore, pounded a table and stormed out of the meeting when the lawmakers brought up their concerns about LePage’s budget proposal.

Lawmakers from both parties say they maintained hope that all sides ultimately will arrive at a budget compromise. But The New York Times on Tuesday highlighted “the frosty relations” among LePage and Democratic legislators.

While Fitch lowered its rating of Maine’s bond debt, the agency also noted some positives for the state.

Maine generally has maintained low levels of debt, Fitch said, and the agency praised a state pension reform package passed by lawmakers in 2011.

Fitch also noted that while Maine’s economic recovery has been “sluggish,” the state’s economy has remained stable compared with the national economy. In addition, state government is responsive when reacting to budget shortfalls, the agency said.

“The state historically addresses budgetary challenges in a timely and proactive manner,” Fitch wrote.

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