Bond Rating Story Archives - West Virginia Public Broadcasting

Minority Leader: Bond Rating Impacts Future Budgets

Legislative leaders on both sides of the aisle are reacting to Gov. Jim Justice’s announcement Tuesday that the state’s bond rating had been downgraded by the third national rating agency in a year.

Moody’s dropped the state’s rating from AA1 to AA2.

Senate Minority Leader Roman Prezioso is a former Finance Chair and explained Wednesday, the bond rating is like a credit score. When the rating is high, the state gets a low interest rate on long-term loans it takes out for expensive projects, like building highways or expanding public water lines.

“But as our bond rating lowers, the interest rate goes up, so it puts a lot of infrastructure projects in jeopardy,” he said.

Senate Minority Leader Roman Prezioso listens to a floor speech on Wednesday.

It affects the current budget to a degree, Prezioso said, but it has a larger impact on future ones.

Even after the announcement, though, and the warning by Moody’s to find a long-term solution to the state’s continually imbalanced budget, Republican legislative leaders are sticking to the guns on cutting government and avoiding tax increases.

In a written statement Wednesday, Speaker Armstead said the downgrade reinforces the need for fundamental changes to how government operates and that the tax-and-spend policies of the past won’t solve the problem.

“There are things that we can do in this legislative session that can reverse that trend, that will put us on a path of growth and prosperity and those are the things that we are intent on pursuing,” Senate President Mitch Carmichael said Wednesday.

Things like reducing the size of government and creating a business climate that incentivizes growth.

“The bond agencies don’t care how much government you have, it’s your ability to pay for it,” Prezioso said, adding he only sees one solution.

“The situation that we’re in now, it almost mandates that to stabilize this economy, we need a revenue source and that’s about the only way you can do it,” he said.

But that’s something lawmakers in recent years have been unwilling to do, and not just under Republican control. Democratic Sen. Corey Palumbo said in a floor speech Wednesday the tax-and-spend policies Speaker Armstead referred to haven’t been implemented in his 15 years in the Legislature.

Sen. Corey Palumbo gives a floor speech Wednesday.

“That’s not been the way of the Legislature,” he told his fellow Senators. “We’ve increased the tobacco tax twice in the last 20 years that I can recall and that’s been the only tax increase that we’ve passed in this Legislature.”

State budget officials have predicted a nearly $500 million budget gap in the 2018 fiscal year, but Republican Sen. Craig Blair said that gap in is the governor’s version of the budget, a budget that’s built on increased spending supported by tax increases.

“He’s brought before us the largest budget that we’ve ever had. He’s also brought before us the largest tax increase that we’ve ever had,” he said during a floor speech Wednesday, “and I can tell you right now, my vote is not going to be part of that.”

That’s why Senate leaders, like Finance Chair Mike Hall, say they’re handling the budget differently this year.

Hall’s committee is meeting with individual agency heads to find potential cuts and efficiencies and instead of building a budget based on the money the governor predicts the state will have in 2018, they’re building it off of the revenues the state actually brought in in 2017.

“We know roughly how much money we took in last year and how much we have to spend,” Carmichael said. “We want to build a budget document around that.”

Only after they have that spending document complete, Carmichael said, will his chamber look to any potential tax increases. Carmichael expects the Senate’s budget document will be completed around the halfway mark of the session.

W.Va. Bond Rating Downgraded for Third Time in a Year

The third bond rating agency in a year announced Tuesday it would be downgrading West Virginia’s rating, from AA1 to AA2.

West Virginia’s Revenue Secretary Dave Hardy announced the decision during a press conference at the Capitol with Gov. Jim Justice.

“This just makes me sick,” Justice said after the announcement. “I mean, that’s just all there is to it.”

Hardy explained while the change in rating isn’t drastic, it does impact $392 million in outstanding state debt and will affect any bond proposals the state puts forward in the future.

In April and then September of 2016, the two other major national rating agencies- Standard and Poor’s and Fitch- downgraded West Virginia based on budgetary issues and the state’s lagging economy. At the time, Moody’s put West Virginia on watch, but made the decision to downgrade Tuesday morning.

“The downgrade reflects, according to Moody’s, a multi-year trend of growing structural imbalance between the annual expenditures and available resources in our state’s budget,” Hardy said.

That means the state is spending more money than it’s bringing in, leaving a budget gap lawmakers have had to fill over the past several sessions.

This year, the Governor’s Office estimates that hole is $497 million and will continue to grow without a solution.

“We’ve been years and we won’t react,” Justice said. “All we want to do is kick the can down the road and we won’t react, and it’s just going to get worse. It’s just going to get worse if we won’t react and we won’t do something.”

Justice wants to raise taxes to fix the imbalance, but Republican Legislative leaders so far are largely against his proposals. They’d rather rely on substantial cuts to government and refinancing the state’s pension debt, lowering the current payment, but extending the length of the debt far into the future.

It’s that proposal, though, that Justice said contributed to the Moody’s decision.

“Moody’s said, if you do that, you’re even more unstable. If you don’t make current liabilities, if you don’t make current payments, you are even more unstable,” he said.

Aside from refinancing pension debt and the state’s massive budget hole, Moody’s says West Virginia will also continue to be downgraded if it doesn’t find a way to create long-term growth and diversify its economy.

In a written statement Tuesday evening, House Speaker Tim Armstead said the downgrade “reinforces the need for fundamental changes to the operation of state government.”

He will continue to support proposals to restructure the state’s tax code and “right size” government, or make additional cuts.

Justice did not take questions from from reporters following his statements.

Second Agency Drops West Virginia's Bond Rating a Level

Another major credit rating agency has dropped West Virginia’s bond rating.

Fitch Ratings announced the downgrade Wednesday from AA+ to AA, calling the outlook negative amid uncertainty in the state’s economy.

Fitch says economic and financial challenges are largely due to significant domestic and international momentum to reduce coal usage. Fitch also cited current low natural gas prices and lack of transmission capacity.

Fitch expects challenges to continue for several years, applying financial stress until the coal decline bottoms out and is replaced by expansion in the state’s other natural resources, or some other positive development.

Fitch called West Virginia’s demographic profile weak, mentioning its steadily declining population.

Fitch praised the state’s reserves and low debt.

Standard & Poor’s dropped West Virginia’s bond rating in April from AA to AA-minus.

Bond Downgrade Adds to State's Financial Woes

Like Gov. Tomblin, West Virginia Revenue Secretary Bob Kiss said Friday he was not surprised to hear Standard & Poor’s had downgraded West Virginia’s bond rating from AA to AA minus, but he said there are silver linings to the decision.

One is the renewed emphasis for lawmakers to approve a budget that includes some long term funding solutions for the state. For Kiss, that means revenue increases.

Tomblin and Republican legislative leaders are well into a month of their budget impasse and although Senate President Bill Cole said last week he felt lawmakers were coming closer to an agreement, there is still no word on when a special budget session will be called.

For Kiss, the downgrade of West Virginia’s rating shows that the “structural hole” he and Gov. Tomblin have been pointing to must be taken care of now and not temporarily patched this year pushing, a more permanent solution down the road.

“We need to find a way to get out of this hole,” Kiss said. “If we continue to live beyond our means we’re going to very quickly drain the Rainy Day Funds.”

The Rainy Day Fund, or revenue shortfall reserve, is the state’s savings account simply put. In recent years, lawmakers have drawn money from the account to balance the budget, but Kiss said if that trend continues, the state could face an even sharper rating downgrade.

But West Virginia is not the only state facing challenges tied to the energy sector. Alaska saw a downgrade earlier this year and Illinois in late 2015.

In West Virginia, the downgraded rating means the interest rate on bonded projects- road construction, school construction, etc.– is likely to go up, and that increase won’t just be seen on statewide projects. Kiss said counties and municipalities piggy back off of the state rating for their own projects.

“They will have to pay more for interest costs so it has an effect,” Kiss said.

State's Bond Rating Dropped a Notch in Coal Freefall

Standard & Poor’s has dropped West Virginia’s bond rating amid the coal industry’s downturn.

The agency announced the drop Thursday from AA to AA-minus. It also said the rating’s outlook is stable.

Standard & Poor’s credit analyst Nora Wittstruck said the downgrade was due to weakness in the energy sector, and particularly, coal. The agency views the challenge as long-term, not cyclical.

Standard & Poor’s praised West Virginia’s Rainy Day Fund and demonstrated willingness and ability to tackle large-scale financial challenges. The agency cited progress addressing unfunded pension liabilities.

Amid falling coal and natural gas revenues, West Virginia’s still hasn’t passed a budget for the fiscal year beginning July 1. The Republican-led Legislature and Democratic Gov. Earl Ray Tomblin are negotiating tax hikes, cuts and use of reserves.

Gov. Tomblin had this to say in a press release regarding the rating.

“Throughout my years of public service, I’ve worked hard to create a strong West Virginia by improving the state’s business climate, addressing our long-term liabilities and creating one of the strongest Rainy Day Funds in the country. Over the past four decades, we’ve made significant progress. Today’s announcement by Standard & Poor’s is disappointing, however it is not entirely unexpected as other states whose economies are largely dependent on the energy sector have experienced similar actions.

“Continued economic growth will take time, and in the short term it cannot fix the significant challenges we face as a state. For months, I have urged the Legislature to adopt a responsible, structurally sound budget. Based on today’s action, objective analysts on Wall Street agree.

“If we don’t take proactive steps to develop a stable path forward that does not rely on one-time monies and even deeper cuts to cover long-term and recurring needs, the economic and budget challenges facing our state will only get worse. We have worked too hard and come too far to allow that to happen, which is why I continue to push for a budget that takes into account the systemic changes in our state’s economy and will put us on the path to a brighter financial future.”