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Columbus
Dispatch...
Kasich hopes budget
plan impresses bond raters
Friday, March 25, 2011
By Joe Vardon
WOOSTER, Ohio - For the past two days, Gov. John Kasich has told rooms
full of Ohio business professionals and local-government officials
about his proposals to privatize some state prisons, the liquor
department and economic development.
Today, Kasich has a different audience for the same speech - analysts
from Moody’s Investors Service, Standard & Poor’s and Fitch
bond-rating agencies.
Kasich, budget director Tim Keen and policy director Wayne Struble are
due in New York to present the governor’s $55.5 billion budget proposal
to analysts who rate Ohio’s ability to repay debt.
Kasich’s budget is stocked with spending reductions, privatizations and
government reforms aimed at erasing the state’s $8 billion budget
shortfall.
All three agencies give Ohio their second-highest ratings for the
state’s general-obligation debt, but Moody’s and S&P also give the
state a “negative” outlook because of extended economic strife tied to
a declining manufacturing base.
Lower bond ratings can make it more expensive for the state to borrow
money. Higher ratings are typically tied to growth or evidence of
future growth.
“What I think they’re really going to like is eliminating the
structural deficit,” Kasich told The Dispatch after a speech to Wayne
County business leaders in Wooster. “And I think they’re going to like
what we’re doing with JobsOhio, what we’re doing with the Common Sense
Initiative. I think they’re going to like things where they look at it
and say, ‘If these things work, they’re going to boost the economy of
the state.’
“That’s what they’re worried about, the underlying trouble that we
have.”
In the summer of 2009, during a national recession that was battering
Ohio more than most other states, Moody’s downgraded Ohio’s bond rating
from “Aa1” to “Aa2” - the agency’s third-highest rating. Fitch also
downgraded Ohio to the agency’s third-highest rating during that time,
and in September 2009, S&P switched Ohio’s outlook from “stable” to
“negative.”
Marcy Block, a senior analyst at Fitch, said her agency’s current
“stable” outlook for Ohio is based on the state’s consistent ability to
balance budgets in eroding economic conditions.
But in the most recent bond-rating reports issued by Moody’s and
S&P, both agencies said their “negative” outlooks were the result
of a prolonged economic slump and the use of “one-time” federal
stimulus money to balance Ohio’s last budget.
Kasich will tell rating analysts today that his budget proposal would
recalibrate the state’s finances. But he’ll also have to satisfy them
that his proposals to privatize state assets, realign Medicaid and cut
funding to local governments would set Ohio on the right path.
“It’s going to be an interesting conversation,” said Karen Krop,
another senior analyst with Fitch. “Changes in policies and the ways
services are delivered are not factors in bond ratings. Balanced
budgets are a factor. Prolonged economic growth is a factor.
“When you talk about the privatization of assets, you have to see
whether it will actually occur and if it will generate the revenues
needed.”
Read it at the Columbus Dispatch
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