Moody’s lowers outlook on Minnesota GO debt

Moody’s Investors Service has lowered Minnesota’s credit outlook citing the economic downturn, loss of budget reserves and “heavy reliance” on one-time measures that only temporarily solve deficits.

The New York rating agency maintains an Aa1 rating for the state’s $4.2 billion in general obligation debt. But Moody’s lowered its outlook to negative from stable.

“The negative outlook reflects Minnesota’s ongoing financial and economic weakness, resulting from revenue underperformance and leading to sizeable out-year budget deficits, and tightening liquidity. In addition, the outlook reflects depletion of budget reserves, negative GAAP balances, and heavy reliance on one-time resources to balance the state’s budget,” Moody’s analysts wrote.

The state could see its rating cut if lawmakers continue to rely on one-time budget solutions that don’t return the state to long-term fiscal stability.

Only a couple months after solving a $4.7 billion general fund shortfall last year, state revenues declined another 3.5 percent to $29.9 billion in the November economic forecast.

The report also notes that the deficit projected for 2012-2013 is $5.4 billion, or 15 percent of general fund spending.

And Minnesota will likely suffer more budgetary stress when the federal stimulus money runs out.

“Approximately $1.1 billion of the current $1.2  billion shortfall [for the 2010-2011 biennium] is the result of revenue underperformance which has strained the state’s liquidity position. Moreover, Minnesota’s vulnerability to further downward revenue revisions given the uncertainty surrounding the timing and the strength of the economic recovery is increased by the drop-off in federal fiscal stimulus monies scheduled for December 2010 which, as in other states, has been used substantially to prop up the state’s budget,” according to Moody’s.

The report said the state is running out of ways solve its ongoing budget challenges.

“Given the one-time actions already incorporated in the adopted budget including payment delays, fund balance transfers, use of federal stimulus money, and depletion of budget reserves, the state has reduced flexibility to address continued budget challenges,” the report said.

Minnesota’s Aa1 rating is the second most credit-worthy rating behind triple-A rated debt.

2 Responses to “Moody’s lowers outlook on Minnesota GO debt”

1. Jenny L. Says:
   February 11th, 2010 at 11:38 am

   This is why the budget needs to be completely taken apart and recreated from the bottom up. Years of bickering has basically made it unusable. This is what candidate Bill Haas is saying he will do and it makes sense. There is nobody who understands this budget any longer and all we do is keep adding to it. Nothing is ever taken off.

2. LVJ Says:
   February 11th, 2010 at 9:14 pm

   In times of economic stress, states are faced with the unpopular choice of cutting basic social services or issuing debt to stretch funds. Certainly, many families have done something similar, we take a home equity loan to provide the extra funds to fix the roof or pay the medical bills. Sometimes it is necessary to accept debt for the good of the family. Now states certainly need to contain costs and cut the fat, but every citizen must accept the responsibility to maintain public services. Stop denying the situation and accept the long term commitment to get through the recession as common citizens. Demand from state government the same discipline and courage we must apply to our own lives.