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Toledo
Blade...
Upgrading
the states
8/14/11
Ohio
and Florida get plenty of
attention as presidential election swing states, but this year they
deserve
notice for another reason. While Uncle Sam was having its debt
downgraded, Ohio
and Florida both got upgrades from Standard & Poor’s in July as
a result of
their improved fiscal management.
In
its report on Ohio, the rating
agency attributed its upgrade to AA+ stable from AA+ negative to the
Buckeye
State’s budget reforms. Gov. John Kasich pushed through a budget that
closed a
roughly $8 billion deficit without raising taxes.
S&P
also noted the moderate
economic recovery and an unemployment rate that fell to 8.6 percent in
May 2011
from 11 percent in March 2010 as signs of a better long-term fiscal
outlook.
Ditto
for Florida, which won a AAA
rating after closing a budget hole with what S&P said were
“significant
cost-cutting measures” and making a commitment to maintaining strong
reserves.
Gov. Rick Scott’s 2012 budget was praised for “significant measures” to
address
its budget deficit and for being “proactive in reducing expenditures to
adjust
for revenue shortfalls.”
Such
ratings matter to states because
they reduce the cost of borrowing and often improve the perception of
their
business climates. Michigan (like many other states) was downgraded
during the
recession, but new Gov. Rick Snyder has been stumping for an upgrade,
touting
his state’s economic comeback, $1.2 billion in spending cuts, welfare
reform,
and modest tax reform.
These
shifts in state fortune are all
the more remarkable because they come despite the end of the federal
stimulus
cash that began in 2009. States that rely heavily on such federal
payments are
more vulnerable to a downgrade now that the U.S. government has
suffered its
own credibility damage. The raters assume no more federal cash will be
forthcoming.
But
S&P pointed out recently that
ratings for state and local governments can be higher if they show they
“maintain stronger credit characteristics in a stress scenario” and can
offset
the loss of federal cash thanks to “financial flexibility and
independent
treasury management.” That’s credit-rater-speak for saying a state will
be
rewarded if it gets its act together.
These
newly elected governors have
their share of political bruises for pushing reforms, and both Messrs.
Kasich
and Scott have suffered in the polls. But the credit upgrades are a
sign of
better things to come.
By
making hard decisions early, they
have made job-damaging tax increases less likely and put their states
in a
better position to benefit from the national economic recovery,
assuming it
continues.
Read
it at the Toledo Blade
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