Moody's blues

By PRESTON BRYANT

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

Four weeks ago, it was noted here that based on the reasons Moody's Investors Services had given to justify its recent downgrading of Minnesota's Aaa bond rating, such a move by the rating agency could be just around the corner for Virginia.

While the other two bond-rating agencies, Standard & Poor's and Fitch, reaffirmed Minneosta's top-grade rating, Moody's knocked it down to an Aa1. In doing so, Moody's opined that the Gopher State's governor and legislature had not moved sufficiently to stabilize their budget over the past couple of recession-wracked years, relying too heavily for too long on their Rainy Day Fund, tricky revenue transfers, and other "one-shot budget actions."

This read horrifyingly like a description of Virginia, which, like Minnesota, has a largely manufacturing-based economy that has taken hard body blows of late, resulting in multibillion-dollar shortfalls to its treasury. To boot, though, we've also had to absorb the fallout from the telecom bust. Dealing with our economic slide has meant resorting to Minnesota-like reserve fund drawdowns, account transfers, and other temporary moves to balance the books.

So it was last week that Moody's put out a notice that it was placing Virginia -- which has never had anything but a Triple-A bond rating -- on its "Watchlist." Such a move could be a precursor to a bump down to Aa1.

If Virginia is downgraded, that would put us embarrassingly in league with such Southern cousins as North Carolina and Tennessee, both of whom have been bumped downward in recent years. The Tar Heels, once a Triple-A state, now have an Aa1; the Vols have an Aa2.

Let's go ahead and say it: our sophisticated commonwealth is better than our adjoining neighbors -- not just NC and TN, but all of them -- and we neither want nor deserve to have a downgraded bond rating in common with them.

The good news is that simply being placed on Moody's Watchlist doesn't necessarily mean that a downgrade is in the offing. We still have time to demonstrate diligence and seriousness toward righting our budgetary ways and returning to a properly structured spending plan. That means writing and enacting a budget that isn't held together with Band-Aids that end up coming off when they get wet.

The Warner administration -- specifically, Finance Secretary John Bennett -- is communicating regularly with Wall Street, giving them the skinny on the internal moves being taken to make our spending more solidly match incoming revenue.

But it's not enough for only one branch of government to demonstrate diligence and seriousness. Moody's and their cohorts want to see the legislature showing such, too. After all, assembling the budget is the General Assembly's responsibility.

So what is it, really, that the legislature can do to reassure the bond-rating agencies -- who are watching our every move -- that we are digging deeply to reinforce our budgetary footings?

Two things come readily to mind.

First, General Assembly leaders need to join Warner and show a united front on all things fiscal. There must be an uncommonly common determination by both branches and parties to acknowledge where we've fallen short and to move together in applying more than temporary fixes. Regardless of whatever else might divide the Republican-controlled legislature and the Democratic governor, there needs to be nary a dime's bit of difference in their public resolve to return to stable budgeting.

Moody's, quite honestly, shows little interest whether a state cuts more deeply into spending, enacts prudent, fiscally defensible tax and fee increases, or employs a combination thereof. They simply want the actions to be reasonable and stable, lessening the budget's ebb to unreliable revenue streams.

Second, there needs to be real action on tax reform. As much as anything, Moody's, et al, will be watching the work of the legislature's 10-member tax-restructuring commission for signs of honest deliberation, sound recommendations, and serious commitment to advancing a plan that more properly aligns assessment of worth with the modern economic production of it. While tax reform will not provide an overnight correction to our fiscal failings, it will set us on a path toward long-term stability.

When Moody's placed Virginia on its Watchlist last week, it acknowledged in its accompanying opinion that state budget-writers have taken "aggressive actions" to balance the books for the 2002-04 biennium, and they also said that any possible downgrade depends on "the state's current and projected financial position with a particular focus on the state's plans to restore structural budget balance in the next biennium."

The onus right now is on Warner. This summer and fall is when the governor and his numbers-crunchers are preparing the budget he'll present to the General Assembly in December -- and on which Moody's will place "particular focus."

Warner would be wise to reach out now to General Assembly leaders so that they all can begin showing -- both in word and budget-writing deed -- that united front. Else, some serious blues are on the way.