Citing continued declines in the state’s revenue projections, three of the world’s most influential  credit rating agencies this week downgraded Washington’s status from “stable” to “negative” until the Legislature can get a handle on the current budget shortfall.

Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch Ratings all preserved  Washington’s current AA+ rating (Aa1 in case of Moody’s), but Moody’s and Fitch lowered their expectations even as they expressed modest confidence in the state’s ability to weather the current economic storm.

“The outlook revision to negative from stable,” the Moody’s report explained, “reflects the magnitude of the revenue falloff that continues to challenge the state as it struggles to recover from the recession; depleted reserves and (Generally Accepted Accounting Principles)-based balances that will remain negative at least through fiscal 2012; and high fixed costs relative to available revenues for the state’s above average debt position.

Credit ratings agencies are concerned about the state's continued poor revenue projections.

“Many states are reporting little or no budget gaps for the current fiscal year as revenues improve and even over perform in some cases,” the report notes. “Washington, however, announced a revenue shortfall of $1.4 billion last fall amounting to about 5 percent of the biennial budget.”

Both reports noted that Washington is especially vulnerable to recession-based revenue dips because the state has no income tax and is dependent on sales and property taxes, which tend to suffer more during hard times.

“The Aa1 general obligation rating,” the Moody’s report conitnues, “incorporates Washington’s sound management tools such as its quarterly consensus revenue forecasting process and demonstrated willingness to address budget shortfalls, along with strong demographic trends that will help propel the economic recovery once it takes hold.

“These strengths,” the report said, “are tempered by exposure to the cyclical aerospace industry, above average debt ratios, and an economy that proved more vulnerable to the housing downturn than expected … As a state with heavy dependence on sales tax receipts and no personal income tax, Washington’s revenues have been hit hard by the negative impact of the recession on consumer confidence.”

Washington state is refinancing or selling more than $1 billion in bonds in the coming weeks. That’s the reason Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch Ratings revisited the state’s credit rating.

Washington State Treasurer Jim McIntire noted the analysts are also worried the Legislature, which has taken little action in the early stages of the current session to deal with budget matters, may be unwilling or unable to deal with the problem.

“They’re concerned about our ability to actually meet the budget deadline and balance the budget,” he said.

Gov. Christine Gregoire in November offered a list of spending reductions that, if enacted, could have closed the current $1.5 billion revenue shortfall. She made it clear she didn’t want to make the cuts, however, and a week later proposed a three-year half-cent increase in the state sales tax.

Her proposals, however, do not constitute a formal budget and Legislature has yet to act on any of her recommendations while it waits for a revised revenue projection in mid-February that is expected to show a slightly wider gap between what the state plans to spend and the amount of money it will collect from various sources.

Oregon and Idaho have the same credit rating currently as Washington, at AA+.

Both states also have a “stable” outlook on their public debt, as opposed to “negative.”

This entry was posted on January 31, 2012 at 6:32 pm and is filed under Budget & Taxes, Economy, Law, Politics. You can follow any responses to this entry through the RSS 2.0 feed.