Moody’s Investor Services has downgraded Maine bond rating due to Gov. LePage policies


May 19th, 2012 

Maine State Capitol photo by Ramona du Houx

“While the health care jobs have been an economic driver over the course of the recent recession, the state’s efforts to reduce spending on social services, especially Medicaid, may reduce future growth prospects for that sector,” wrote Moody’s Investor Services, Maine’s credit rating agency, in a press release.

This was one reason why Moody’s dropped Maine’s bond rating to AA negative from AA positive. The agency said the negative outlook “reflects Maine’s recurring challenges on the spending side of its budget, primarily in the Department of Health and Human Services, which includes Medicaid.”

Some economists have said that the downgrade is a warning to the state to review policies that might endanger job growth. From 2002 to 2010 job growth occurred mainly in healthcare, manufacturing and innovation sectors.

Moody’s also saw problems with the lack of funds in the state’s rainy day fund— the minimal budget stabilization fund balances. The agency sited a, “weak general fund liquidity position reflecting the lack of reserves.”

Standard & Poor’s also served notice in the past eight months that Maine’s rating is in jeopardy because of tax changes that widen revenue gaps and deplete reserves.

The nearly $500 million in unfunded tax cuts for the wealthy passed by the Republican majority in the legislature and LePage during the past eighteen months has caused concern among these credit rating agencies.

During the Baldacci administration substantial cuts were made largely with consolidation efforts and the state still managed to increase the rainy day fund until the recession hit.

During an interview with WGME when Gov. Paul LePage first came to office he was asked about the state’s rainy day fund.

“On Jan. 5, when I was inaugurated, there was not enough money in the rainy day fund to buy dinner,” he said.

In reality the fund balance was $25.4 million when LePage took office, according to budget numbers posted on the Legislature’s Office of Fiscal and Program Review website. After the first quarter of the budget year state revenues were in the black by $5.9 million, boosted by continued corporate profits far higher than projected.

Those corporate profits, in many cases, were directly related to Baldacci’s Pine Tree Development Zone (PTDZ) initiative, which encourages companies to move to Maine or expand in the state by giving them tax incentives, and the removal of the BETR equipment tax.

• There are twelve corporate companies headquartered in the state of Maine were included on the 2010 Inc. 500/5000 list of the fastest growing, privately held companies in America. To qualify, the companies had to have revenues of at least $2 million in 2009.

• According to the Maine Development Foundation, from 2007 to 2008 the state of Maine experienced greater growth in per-capita personal income than the nation—3.9 percent compared to 2 percent. Then the Great Recession hit. Still, from 2009 to 2010, Maine’s personal income grew by 3.5 percent.

• According to the Maine International Trade Center between 2002 and 2008, Maine exports rose over $1 billion. In 2010 Maine became the 5th fastest growing state for exports. During the Baldacci administration Maine companies brought in $60 million in export sales as a direct result of trade missions and trade shows.

• MITC said that the 2009 Trade and Energy Mission to Spain and Germany was the most successful trade mission to date, with over $21 million in sales and contracts reported by the Maine companies.

• During the Baldacci year’s 310 companies have located to Maine or expanded their businesses here, because of PTDZ incentives. They represent a total investment of $873 million, with an annual payroll of $341 million. That’s 8,206 jobs.

Despite the recession when Gov. Baldacci turned the state over to Gov. LePage the state was in the black with a rainy day fund.

Moody’s report stated that “A rating downgrade could be triggered by: the emergence of further significant budget gaps in the current biennium or future fiscal years; the absence of a clearly articulated plan to achieve meaningful improvement in the state’s available reserve position in the near term; cash-flow strain stemming from reduced liquidity; or a slower than average economic recovery that hinders revenue growth.”

LD 849, a bill sponsored by Senator Jon Courtney and passed by the legislature would put Maine’s credit rating at risk. According to the nonpartisan fiscal office of the Maine Legislature, full implementation of LD 849 as written would cause losses to Maine schools, roads, bridges, and towns totaling over $1.2 billion per biennium. This is because the TABOR measure lowers taxes, which would leave state programs in need of funds. The state would be forced to cut back on programs. And municipalities would be forced to raise property taxes to make up for the lack of state funding.

“We’ve heard loud and clear from the credit agencies that this bill puts Maine’s credit rating at risk,” said Rep. Seth Berry, who has opposed this TABOR like measure. “This is nothing short of an unfair and unfunded tax shift onto middle class families who are already paying enough in property taxes.”

Analysis by Maine Revenue Services shows the Republican bill, would give an average tax reduction of only $1 to the bottom 20 percent of income earners. By comparison, the tax cut would give an average reduction of over $21,000 to the wealthiest 1 percent of Maine residents.

“This isn’t a tax cut. It’s a tax shift, and it’s a sham,” said Sen. Philip Bartlett II, during debate. “This is nothing more than credit card politics.”

In February, Fitch Ratings Inc., one of the most influential credit rating agencies, changed its outlook for Maine’s creditworthiness from “stable” to “negative.” Fitch warned that their rating “is dependent upon the state’s ability to … meaningfully rebuild reserves depleted during the recession.”