roanoke.com Real Politics / Preston Bryant

Preston Bryant is a Republican who has represented Lynchburg and part of Amherst County in the Virginia House of Delgates since 1996.

As Minnesota goes, so goes Virginia? Let’s hope not.

About six weeks ago, Moody’s Investors Services took a hard look at Minnesota’s economy and the way in which its governor and legislators had been handling its budget challenges. Then the widely respected credit-rating and research firm downgraded the Gopher State’s Aaa bond rating to Aa1.

A Triple-A rating is the best that can be obtained. It allows a state government to borrow money on the most favorable terms possible, saving taxpayers millions of dollars in General Obligation Bond interest payments. Losing that top rating is a tough blow, not to mention embarrassing.

While Minnesota officials are quick to point out that the two other rating agencies, Standard & Poor’s and Fitch, reaffirmed their Aaa rating, the Moody’s downgrade did affect $3 billion of GOB debt. That’s not good. And it won’t be shocking if the other two rating agencies take a more critical look at Minnesota the next time around.

What’s striking is the opinion Moody’s issued to explain its Minnesota knockdown, an opinion that centered in no small part on the way in which the state budget has been balanced during these difficult past couple of years.

Moody’s noted the state’s deteriorated economy, one that’s heavily dependant on manufacturing. Attention also was drawn to creative state budget-balancing that included some $1.7 billion in “fund drawdowns, transfers, and tax and payment shifts.” Sound familiar?

Minnesota, like Virginia, has a two-year budget. And also like Virginia, their budget-writers have had to overcome staggering deficits. When Minnesota’s legislature convened for the 2003 session, they were greeted with a $4.2 billion shortfall for their 2004-05 budget. Fortunately, Virginia’s governor and General Assembly only had to whack away a $2.1 billion shortage.

When Moody’s analysts evaluated Minnesota’s just-adopted budget, they noted that there is a heavy reliance on “one-shot budget actions.” That means, in simple terms, that those budget fixes won’t be available for future shortages, so next year’s budget, absent a remarkable upward surge in revenues, will be just as tough to balance.

Oh, Moody’s also noted that Minnesota both reduced to zero its Rainy Day Fund and enacted more than $200 million in fee increases. What did Virginia do on these two counts? Well, we also scooped from our Rainy Day Fund. We took $467 million in 2002 and another $246 million this year, and we’ll withdraw yet another $129 million next year, all of which will leave about $130 million in the fund. We likewise raised fees, about $275 million worth stretched over our 2003 and 2004 fiscal years.

Both Minnesota and Virginia have avoided any general tax increases, which is generally a very good thing in recession-wracked times.

Minnesota’s budget woes, like our own, go back to 2002, when the nation’s economy began to turn downward. Then, too, both Minnesota and Virginia resorted to one-shot fixes as well as creative money-shuffling.

Many Virginia legislators -- Republicans and Democrats -- have long held that the only time they would even consider a tax increase is if our Triple-A bond rating fell in danger of being downgraded. It’s not thought that Virginia is in any rating-agency danger zone -- yet.

There is speculation, though not a consensus, on whether Minnesota could’ve saved its unanimous Aaa rating if the governor and legislator had worked together to chop even more from their budget or enact a short-term, modest tax hike instead of relying on one-time fixes and various revenue transfers. Everyone realizes, including Moody’s, that states have to enact one-time adjustments from time to time, especially when recessions or other unforeseen disasters hit. But nobody, and no rating agency, wants to see a state rely year after year on single-shot transfers and other quick fixes.

The Old Dominion has long savored its Triple-A bond rating. We pride ourselves on it, often proclaiming proudly that we’re one of a select number of states with the top rating.

State finance officials work overtime to impress upon the rating agencies that Virginia recognizes its budgetary challenges, on both the revenue and expenditure sides of the ledger. And because of that, Moody’s still gives Virginia a Triple-A rating.

However, if we are to continue getting top ratings, it will hinge on an even more diligent effort to have a properly balanced budget. In fact, Moody’s said point blank to Virginia just a couple of months ago that the rating agency expects state leaders to return to our once well-structured budgets. One thing Moody’s will be watching is how seriously the latest tax reform commission takes is responsibilities. Moody’s, like so many others, expects results.

Let’s hope Virginia doesn’t follow Minnesota and fall into the same soup. Let’s hope we take a long, hard look at what we’ve done in past years to balance our budget -- especially our reliance on one-time fixes -- and avoid doing more of it.

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