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Moody’s: Minnesota’s Financial Outlook ‘Negative’

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(credit: Jupiter Images)

(credit: Jupiter Images)

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ST. PAUL, Minn. (AP) – One of the three major credit rating agencies took a gloomier outlook on Minnesota’s financial future on Monday, citing “political intractability” and the lack of a permanent fix to persistent deficits after a 20-day government shutdown.

Moody’s Investors Service lowered its outlook for state debt to “negative” from “stable,” without lowering the state’s credit rating, which is at the second-highest level possible. Analysts said the years of divided government have led to temporary budget solutions that make future deficits more likely. Their dose of pessimism comes after another agency, Fitch Ratings, cut Minnesota’s top rating a notch during the shutdown because of contentious politics and temporary budget fixes.

The changes show the fallout from budget standoffs that resulted in two state shutdowns in the past six years.

States guard their credit status — especially those at the top end — because any sign of tarnish can make it more expensive for them to borrow money for public works projects. The Moody’s warning serves notice analysts are closely watching how state leaders approach future budgets.

“Minnesota has incorporated nonrecurring measures to fix budget shortfalls since fiscal 2009, when the economic downturn reached the state,” Moody’s analysts wrote. “Each subsequent fiscal year, the state continued to increase the use of one-time measures for a quick fix, creating a structural budget imbalance in future years.”

They added that Minnesota will face “significant obstacles” in balancing the budget in the next cycle.

To get out of this year’s impasse, Democratic Gov. Mark Dayton and majority legislative Republicans agreed to delay school payments and borrow against legal payments from tobacco companies. Moody’s noted that it wasn’t the first time the state turned to accounting shifts and one-time measures to balance the budget — similar fixes were used when Republican Tim Pawlenty was governor and Democrats controlled the Legislature.

The state has also drained most of its rainy-day savings, leaving less of a cushion for future budget problems.

Management and Budget Commissioner Jim Schowalter, Dayton’s top finance adviser, said the state’s budget problems are starting to overshadow a “strong, balanced economy.”

“Sooner or later, we need to fix the state’s budget so that it does not rely on one-time solutions,” Schowalter said in a release. “That continuing problem is particularly unfortunate because it obscures Minnesota’s many strengths.”

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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