AUGUSTA — Legislative Democrats on Wednesday sought to put the best face on a rating agency’s downgrading of state bonds, saying it targets the very issues they are focused on this session.
“Our laser focus on jumpstarting our economy and putting people back to work will show Fitch (Ratings) and others that we are determined to get to work getting results,” said Senate President Justin Alfond, of Portland.
Fitch Ratings, citing “persistent budget gaps despite repeated balancing actions,” on Tuesday downgraded Maine’s $472 million in general obligation bonds from AA+ to AA. Fitch also downgraded the rating on $1.4 billion of the Maine Municipal Bond Bank’s general resolution bonds from AA- to A+.
The ratings system runs from a high of AAA, representing top quality and reliability, down to D, representing defaults on obligations or likely defaults.
Besides the revenue shortfalls lawmakers are almost always addressing, the New York ratings agency said one-time fixes included in the governor’s proposed budget for fiscal 2014-15 create an expectation that future adjustments will be needed.
“The one-notch downgrade on Maine’s (general obligation) bond rating reflects its reduced financial flexibility with weak reserve levels and limited options to address a difficult budgetary situation,” Fitch says in its report.
Ratings set benchmarks for how much interest companies will have to pay to sell bonds. The higher the grade, the lower the interest rate a borrower, in this case the state, must pay. Democratic leaders, however, said that the Fitch downgrade will not affect future bonds and shouldn’t ratchet up interest the state will pay to investors on existing bonds.
Moody’s Investors Service rates Maine general obligation bonds AA2, negative outlook, and Standard & Poor’s rates them AA stable, according to the treasurer’s office.
State Treasurer Neria Douglass said the rating situation can be improved.
“We can start by issuing the bonds that voters approved in June 2011 and November 2012,” Douglass said. “The projects voters approved will create jobs and provide the foundation for a better economy.”
Republican Gov. Paul LePage has been reluctant to issue voter-approved bonds, saying the state’s financial situation must improve first. But he has recently promised to release $105 million in bonds if his plan to pay a state Medicaid debt to hospitals approaching $500 million is approved.
LePage has also proposed $100 million in government facilities bonds to build a replacement for the Maine Correctional Center in Windham.
The governor had no immediate response to the Fitch downgrading. But other Republican leaders said they were disappointed with Democrats’ “hyper-partisan responses” to the downgrading.
House GOP Leader Ken Fredette, of Newport, said the Fitch report noted the administration’s “positive reforms” such as pension reform, low debt levels and long-term structural savings, while increased costs in Medicaid and other programs the state can no longer afford are products of past Democratic leadership.
A Democratic leader said LePage’s pending $6.3 billion, two-year budget is a big part of the fiscal problem.
“Governor LePage’s current approach to the budget and revenues needs to be more collaborative and less like the obstructionist approach of Republicans in Washington,” said House Speaker Mark Eves, of North Berwick.
Among other things, the budget seeks to suspend revenue sharing to towns and cities for two years and have school districts pay a portion of teacher retirements instead of the state paying it all.
Administration officials have identified as major budget challenges a loss of federal stimulus funds and rising Medicaid obligations.