In the following quote, I have helpfully inserted the party to which the state’s current Governor belongs.
A number of states have seen their credit rating downgraded over the last two years, as the global recession impacts state revenue collections and leaders are forced to respond. Moody’s has downgraded states, including Arizona [R], California [R], Illinois [D], Nevada [R], Ohio [D] and Rhode Island [R], with an additional 6 states placed on negative watch. Over the same period, Fitch has downgraded California [R], Connecticut [R], Illinois [D], Michigan [D], Ohio [D] and Rhode Island [R], and placed an additional four states on negative outlook.
And don’t forget Minnesota, governed by Republican presidential wannabe Tim Pawlenty, which was recently downgraded to “negative outlook” by Moody’s, in light of Pawlenty’s “reliance on one-time solutions and empty reserves.”
So what we’re seeing across the country is a bipartisan failure to make tough economic choices, resulting in a loss of confidence in various states’ abilities to meet their obligations — but not here in Massachusetts. Kudos to the Governor and the Legislature for making this happen.
Oh, and one more thing. You know how the local Gov wannabes are perpetually moaning about how badly the Patrick administration has managed things, and in particular how they’ve inappropriately drawn down the Rainy Day Fund? That always struck me as an absurd criticism. If this last economic downturn wasn’t a “Rainy Day,” then I guess Antarctica will have to melt before we can tap that fund. Well, look who agrees with me.
Each of the three agencies note that while the state budget during the economic downturn has relied in part on Rainy Day Funds, the administration has maintained a healthy balance. Moody’s notes that in Massachusetts, “a larger portion of those reserves are still available compared to other large states at this rating level. While the reserve is significantly depleted from a peak of $2.3 billion at the close of fiscal 2007, it is still sizeable enough to provide a cushion against future revenue shortfalls and unforeseen spending needs.”
Really, this is a huge vote of confidence in the Patrick administration’s fiscal management. In fact, I’m tempted to say that Governor Patrick is on something of a winning streak right now. Between this excellent news from the rating agencies and Patrick’s big win with the public employee unions, it’s getting harder and harder to find room for serious (i.e., non-political) criticism of how the Gov is running the state’s finances. I conclude with a quote from today’s op-ed by Scot Lehigh, who of late seems to have become one of Patrick’s biggest fans:
[F]or private-sector workers, the real message from this winter of labor discontent should be clear: On a number of difficult union issues – issues so thorny and thankless they had long gone unaddressed – Patrick has his priorities straight…. [L]et’s give credit where it’s clearly due. On the recent issues that have left labor leaders huffing and puffing, Patrick has done the right thing…. [I]n confronting tough issues in difficult times, Patrick has put the public interest first.
Word.
While the actual rating is suspect (more later), the relative ratings do matter — if MA has a higher rating than MN, that does suggest that MA is being run better than MN.
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p>Now, about the ratings themselves… they’re all rated too low. The rating agencies have a long history of rating states and municipals low, implying that their debt is riskier than it actually is. How do we know?
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p>Look at the default rate of corporations for a given bond rating and interest rate, then look at the munis and states’ default rating — the private loans default far more frequently.
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p>What’s effectively happened is that the private rating agencies are setting rates which pull more money from public coffers for loans than ought be in a fair marketplace. As a result, governments can’t get as much bang for their buck. Very frustrating.
Of the ratings flaws. Like you said, they still work as a relative measure. But you’re right, even “risky” munis and states aren’t really all that risky. Govt bonds are some of the safest investments there is. Even the iffy Big Dig financing IS and WILL be repaid, and it’s under sucky terms…
You are Lawrence, then all bets are off. đŸ˜‰
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p>(Heh, I’m so mean to Lawrence…is it a case of “we’re better off by comparison so it makes me feel better” I wonder?)
just not as risky as Moody’s et al make them out to be.
Is indeed a very big deal because it lowers the cost of borrowing for capital investments significantly. As you know, a difference of a few percentage points (or even less) on borrowed money is a huge amount in the long run, on compound interest.
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p>The fact that we can do this despite the current fiscal outlook AND the remnants of the mistake of the big dig financing (coughBakercough) is a pretty damn big achievement. See, the ratings (well, one would hope since so much is riding on them) is a reflection of ACTUAL facts and not influenced by political considerations, so therefore is a great measure of achievement. Unless of course, one is cooking the books, but that is certainly not the case here.
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p>Lowell, under current city management, has seen its ratings increase as well. We were headed to the dumps on that score until a few years ago. In fact, we’re lucky to have pulled away from that path before this downturn…or else we’d be about where Lawrence is at right now.
hard to see how this Herald headline isn’t a huge win for him:
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p>”Unfair to insurers.” AAAAHHAHAHAHAHAHAHAHA!!
(read Wall Street) like the fact that Patrick is “closing gaps through spending reductions” (read cutting services to the most vulnerable and the municipalities, and laying off state workers, who apparently make more money than the executives on Wall Street) in order to balance the budget. By the way, these were the same rating agencies that rated sub-prime mortgages so highly, weren’t they?
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p>I’m not saying Patrick hasn’t made some good decisions in dealing with the economic downturn. But it seems the burden of his decisions has fallen disproportionately on those who can least afford it. But then again, that should play well with Republicans, Independents, and apparently with BMG editors.
But I think you are missing the point.
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p>Because of our rating and the lower risk based upon Governor Patrick’s handling of the budget we get better bond rates which will save the commonwealth millions of dollars.
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p>Plus, it throws a monkey wrench in Baker’s made up nonsense, the more factual feedback we get from the real world the more Baker sounds foolish when making his statements.
but why are we constantly forced to choose between two evils or bad and adequate?
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p>If this was Charlie Baker balancing the budget on the backs of poor and middleclass with cuts in services and regressive taxes the Dems would be criticizing not applauding.
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p>The post would instead be titled,
“Baker gives tax cut to financial institutions that brought down the economy and used taxpayer bailout to give execs huge bonuses. While accepting taxpayer’s bailout money, these same institutions refuse to re-negotiate taxpayer’s mortgages and continue to increase their rate of foreclosures.”
The difference between Baker and Patrick, I think, is that I don’t think Baker would have pushed for a single tax increase, so he would have balanced the budget far more on the backs of the poor and middle class. I think he would have tried to cut local aid quicker too, as Romney did in 2003.
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p>Another difference is that I think a Democratic governor would have pushed for higher taxes and fees during our time of relative prosperity (i.e. 2000-2006) instead of deferring maintenance on our infrastructure. Because of those Republican decisions, we’re now faced with higher infrastructure expenses when we can least afford them.
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p>Another difference is that I think a Democratic governor would not have pushed to reduce the income tax during that same time of relative prosperity. Doing that led to a need to increase taxes during a time when people can least afford them. The Massachusetts Budget and Policy Center did an analysis of the effect of those tax cuts, and concluded that the reason we have a budget crunch is that revenues did not keep up with the economy. The state economy grew 2.64% from 1998 to 2008, but state spending grew only by 2.24%. Unfortunately revenue grew by only 1.48%, mainly due to the tax cuts (income and capital gains) and the erosion of the sales tax by internet sales and an increase in the service sector.
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p>I think that Deval Patrick did a relatively good job navigating the waters of this state. Don’t forget, even though many people describe themselves as Democrats, many are “fiscally conservative” Democrats, and would easily vote Republican if they felt that their taxes were too high.
there is very little difference between Patrick and Baker and how each has, or would, react to the budget crisis. Both come from the corporate world, and that’s how each views government — as a corporate bottom line.
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p>It’s great that we will save millions of dollars in borrowing costs. But let’s not forget who is making most of the sacrifice to get us there.
cutbacks were seen everywhere. I know you have seen first hand the issues with cut backs on human services and I do read your posts.
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p>But at the same time, Baker’s radio comments this week to someone who took a pay cut and his 2000 cuts (somewhere???) in HHS is not in line with Governor Patrick.
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p>There is a real difference between them.
from the state, while the rest of us get cuts in services and a tax increase.
You’re dead wrong.
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p>Moody’s et al don’t care how Patrick is balancing the budget, as long as they thing it’s sustainable. If taxes were nudged upward and Moody’s believed that the tax increase would result in higher revenues in each of the coming many years, then they’d be OK with that too. If Governor Patrick’s budget eliminated the tax benefits for corporations, that would be fine too. Or if he signed a long term lease on the State House to generate substantial revenue, that’s cool too.
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p>Moody’s et al is simply concerned in the state’s ability to pay down debt — which means looking at the books to decide if the long term costs are at or below the long term revenue, taking into account not just the traditional financial risks but also the political risks that come along with them. For example, the fact that Prop 1 (Income Tax Repeal) failed so hard in 2008 suggests that the voters in MA are willing to pay taxes, and that suggests that the political pressure to cut revenue is lower in MA than in other places… and that may well have had an impact on our rating.
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p>Bottom line: the presumption that they liked how Patrick is balancing the budget is flat out wrong. They’re indifferent. This is math, not ethics.
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p>I’m in no way arguing that Patrick’s budget is a good one or a bad one.
how the budget is balanced. Cut services or raise taxes, it’s all the same to them. What I’m saying is Patrick has largely cut services. Municipalities are reeling and so are human services. School districts, libraries, and all those other essential institutions are making the largest sacrifices. My point is that Patrick had a choice, and he has largely chosen that route. To praise him for satisfying the bond rating agencies is to endorse his budget-cutting choices.
is including the facts that support your campaign and leaving out those that don’t.
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p>Like including:
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p>while leaving out Moody’s warning:
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p>If the rating is due to cutting social programs and raising regressive taxes, could we not ask for better?
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p>Would a progressive tax resulted in a lower bond rating?Perhaps Massachusetts could take back the new corporate tax cuts and use the money for long term economic health – jobs, education, infrastructure….
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p>Granted it is good! Just saying that home foreclosures are up this year over last year, and Mass financial institutions just got a huge tax break.
Maybe we could hope for balancing the budget while spreading the burden evenly. That would be great!!
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I’m all for a progressive income tax. But that’s a multi-year proposition including a highly uncertain fate at the ballot.
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p>And while I’m certainly a fan of having corporations pay their fair share, at some point one does have to accept the fact that if we continue to hike taxes on them, they (at the very least) won’t be able to hire as many people as they otherwise would, don’t we? In other words, is it really as simple as this:
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p>Jobs are great. We want more jobs. How do we get them? Don’t we have to get private business to hire more people?
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p>So … it has to be some combination of all these things. That’s what the Gov has tried to find. He probably hasn’t done a perfect job, but it does seem to me that he’s found some decent middle ground.
Never did I mention a corporate tax hike. I referenced the large corporate tax cut that just began January 1. Unless there is some secret surplus that was irresponsible to cut taxes when there is not enough money to pay for budget essentials. Explain the fiscal responsibility of this move.
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p>To ask the unemployed, poor and middleclass to pay increased taxes, and services are being cut, public servants are facing layoffs, furloughs and cuts to salary and benefits – this is time for a corporate tax cut? If Charlie Baker had done this, you would condemn it.
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p>BTW corporate tax cuts have NEVER created jobs.
If a wooden shoe manufacturer gets a tax cut do they hire more employees?
If a half full restaurant gets a tax break do they hire additional staff?
If the furniture warehouse is full and not moving, does lowering their taxes encourage them to hire and ramp up their production?
Of course not.
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p>Supply side economics is a MYTH!
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p>Consumers create jobs.
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p>When a manufacturer’s orders double, they hire even if the tax on their profit increases.
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p>Trickle down theory is promoted by the same folks who argue against climate change and the arguements are just as valid.