Rating agencies warned us, in 2011, when tax cut legislation created a $400 million budget hole and no plan for how to fill it. LD 849 ignores that warning and puts Maine at risk for higher interest rates and lower investor confidence.
LD 849 shifts funds out of the state’s reserve accounts and leaves future legislatures to deal with the revenue gap.
Three credit rating agencies have put Maine on notice over the past eight months that our credit ratings are in jeopardy as a result of tax changes that widen revenue gaps, deplete reserves, and fail to address infrastructure needs.
Revenue gaps
Moody’s warns that “tax changes leading to revenue reductions leave [Maine] vulnerable.” They go further saying that “revenue weaknesses leading to budget shortfalls” could cause Maine’s rating to drop.
Lowering tax rates without a plan for how to replace lost revenue, as legislators did last year and is proposed in LD 849, is badbusiness.
Depleted reserves
In February, Fitch Ratings, Inc. changed its outlook for Maine’s creditworthiness from “stable” to “negative,” warning that our high AA+ rating is in danger of being downgraded.Fitch cautioned that their rating “is dependent upon the state’s ability to … meaningfully rebuild reserves depleted during the recession.”
Standard and Poor’s (S&P) also said Maine’s credit outlook isnegative because of smaller than necessary reserves.
Moody’s says they are watching how Maine manages its reserves. Their current stable credit outlook for Maine is predicated on their expectation that the state will improve those reserves.
LD 849 reduces funds going into Maine’s reserve accounts and endangering Maine’s credit rating under the Moody’s formula.
Ailing infrastructure
S&P points to Maine’s failure to plan for capital improvements as a “constraining factor” on its credit rating.
LD 849 not only reduces funds to the state’s capital construction and improvements reserve fund, but a downgrade in the state’s credit rating will increase interest rates and hurt our ability to make needed investments in Maine’s economy.
