S&P Cuts Minnesota’s Last Perfect Credit Rating
ST. PAUL, Minn. (AP) — Minnesota’s last remaining perfect AAA credit rating disappeared on Friday when Standard & Poor’s downgraded the state’s debt, citing lawmakers’ weakness for fixing budget shortfalls with accounting shifts and rainy day funds.
The New York-based agency cut its rating on the state’s bonds to AA+, joining Fitch Ratings and Moody’s Investors Service in giving a less-than-perfect grade to a state long proud of being above average. The downgrade also is likely to lead to higher borrowing costs for the state and local governments including cities and school districts, although the initial increase could be masked by low interest rates. The state is due to sell bonds next week and later this year.
“Unfortunately we are no longer a triple-A state,” Minnesota Management and Budget Commissioner Jim Schowalter said in a statement. “Their assessment confirms what we all know — that we need to fix the state’s budget problems so that we don’t have large and recurring budget deficits.”
Minnesota has been under politically divided government since the mid-1980s and clocked the nation’s longest state government shutdown in at least a decade in July, when Democratic Gov. Mark Dayton and a Republican-controlled Legislature deadlocked over a $5 billion deficit. State leaders eventually agreed to delay school aid payments and sell bonds based on future legal payments from a settlement with tobacco companies to erase that shortfall, after turning to accounting shifts and reserves to erase deficits in recent years.
The political dysfunction led Fitch Ratings to downgrade its perfect credit rating for Minnesota during the 20-day shutdown. Minnesota had lost its perfect rating from Moody’s in 2003, hovering once notch below that since then. The state’s more recent budget problems led Moody’s to lower its outlook for Minnesota’s financial future from “stable” to “negative” in August.
Standard & Poor’s analyst Robin Prunty cited temporary budget fixes — including the delayed aid payments and the bonds based on tobacco settlement money — and diminished reserves as reasons for the downgrade.
“The downgrade reflects what we view as the state’s ongoing reliance on nonrecurring measures to balance its budget, which we believe will contribute to continued structural imbalance,” Prunty said.
Dayton — who gave up on a plan to raise income taxes on the highest earners because of GOP resistance — blamed Republicans for the downgrade.
He called it “very disappointing but not surprising, given the fiscal irresponsibility of the Legislature’s Republican majority. Standard and Poor’s specifically cited the use of one-time measures, which would not have been necessary had my proposed budget been adopted.”
GOP House Speaker Kurt Zellers threw the responsibility back on Dayton for not supporting a Republican plan to erase the deficit through budget cuts alone. He said both parties share responsibility for the budget that became law.
“It wasn’t written in invisible ink,” Zellers said. “He put his signature to it.”
State finance officials met with the rating agencies last week in New York as they prepare to sell $921 million in general obligation bonds next week.
Schowalter said it won’t be easy for the state to regain perfect credit ratings. It took 15 years to regain the top rating the last time the state was downgraded.
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