Moody's Changes Maine Outlook to Negative After TABOR Vote

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Earlier this month, the Maine Center for Economic Policy began warning that passing LD 849, the new TABOR bill [2], which turns future temporary state surpluses into permanent additional tax breaks primarily benefiting the wealthy, would damage Maine’s reputation among the ratings agencies that determine how much it costs the state to borrow and pay its debts.

“Rating agencies don’t like ‘time bomb’ tax cuts such as those being proposed,” warned policy analyst Jody Harris, writing in the Bangor Daily News [3]. “It is a risky proposal that will undermine the state’s credit rating, resulting in higher interest rates and ultimately higher costs to taxpayers. It will jeopardize our ability to provide basic public services on which families and businesses rely. It will erode the quality of our schools, transportation system, communications network and other job-creating assets.”

That same newspaper soon took up the issue itself, noting in an editorial on Tuesday [4] of this week that Fitch Ratings had already changed its outlook for Maine from stable to negative and that “Moody’s Investor Services and Standard & Poor’s, the other two major credit rating agencies, have 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.”

Two days ago, Governor Paul Lepage’s own Commissioner for Administrative & Financial Services, Sawin Millett, spoke about [5] his concerns for the effect of the bill on Maine’s credit ratings.

“My concern about the bill is the last statement in the fiscal note that acknowledges that the cascade methodology allows one time savings to trigger ongoing permanent reduction in revenue. That’s where I get concerned and I know that it can be, as I just heard, gradual and not, you know, particularly aggressive at the outset, but I like to keep my focus on ongoing revenues tracking ahead of ongoing expenditures,” said Millett. “That’s what I hear, every time I go to meet with the bond rating agencies, so I think it’s important to keep the two sides of the equation always in balance, always in focus.”

It should be no surprise then that last night, following the passage of LD 849, Moody’s Investors Service changed its outlook [6] on Maine from stable to negative.

The company’s report [7] states 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.”

At this point, it’s pretty obvious that LePage and the Legislature have no “plan to achieve meaningful improvement in the state's available reserve position” and certainly not a clearly articulated one. The threat of a rating downgrade can be added to the long list of practical and political objections [2] to the TABOR plan. If, as he claims, LePage is actually interested in sound fiscal policy and good management rather than an ideological agenda, he should veto this bill.