UPDATED: Moody’s Downgrades Maine Bond Outlook from stable to negative

Posted on May 18, 2012. Filed under: Uncategorized | Tags: , , |

Exactly what Commissioner Millett and Democrats in the Legislature such as Rep. Seth Berry feared and warned us has now come to pass:

Citing issues related to Medicaid spending and a dearth of reserves, Moody’s Investors Services lowered its outlook of Maine’s $498 million in general obligation bonds from stable to negative.

The company gave the debt, as well as $55.8 million in general obligation bonds Maine plans to issue, the rating of Aa2, the third highest, according to Bloomberg. In a press release, Moody’s said the state has manageable debt levels, improving revenue performance and has recently resolved budget shortfall issues.

However, it called out the state’s spending in its Department of Health and Human Services and “chronically negative…combined available reserves, a large portion of which is related to Medicaid reimbursements due to hospitals.” Those factors, plus a weak general fund liquidity due to a lack of reserves, led to the negative outlook.

Update: It is important to note that Moody’s did not downgrade the ratings of Maine bonds, just the outlook – but explained what would lead to a ratings downgrade:

The negative outlook reflects Maine’s recurring challenges on the spending side of its budget, primarily in the Department of Health and Human Services (DHHS) which includes Medicaid; minimal budget stabilization fund (BSF) balances and chronically negative GAAP-basis combined available reserves, a large portion of which is related to Medicaid reimbursements due to hospitals; and a weak General Fund liquidity position reflecting the lack of reserves.

A rating downgrade could be triggered by: the emergence of further significant budget gaps in the current biennium or future fiscal years; the absence of a clearly articulated plan to achieve meaningful improvement in the state’s available reserve position in the near term; cash-flow strain stemming from reduced liquidity; or a slower than average economic recovery that hinders revenue growth.

This last budget enacted by Republican legislators is based on waivers that the Federal government has already said it will not grant. When the waiver requests are rejected (as happened with Arizona last year), this will lead to an immediate $22 million shortfall.

Further, should LD849 (the TABOR bill) become law, it will automatically cut revenues to the State, making the State’s reserve position worse than it is today.

*Related: Commissioner Millett “Concerned” About TABOR Bill Affecting State Bond Rating- Same as AFA Committee Democrats

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