If Virginia legislators cannot pass a budget by June 30, the state’s prized AAA bond rating could suffer.
Gov. Tim Kaine, Sen. John Chichester, R-Fredericksburg, and Del. Vince Callahan, R-McLean, will be meeting on Wednesday with the nation’s top rating agencies — Standard and Poor’s, Moody’s and Fitch Ratings — to defend the rating that only seven states hold, including Maryland.
“We’ll be very interested to hear on Wednesday what they are going to say on getting a budget passed by the beginning of the fiscal year,” said Nick Samuels, a Moody’s analyst.
There is still time to pass the budget, but if nothing gets passed by July, “we become more concerned,” Samuels said.
Moody’s wants to know what actions the governor can take without a budget, especially since the first payment of fiscal 2007 is due Aug. 1, Samuels said.
“They are not general-obligation [bonds], but that doesn’t mean we wouldn’t be expected to pay them. And whether the governor will have the authority to pay them without a budget, I don’t have the answer for that,” said Evelyn Whitley, director of debt management for Virginia’s Treasury Department.
The Attorney General’s Office is researching that answer.
The state has more than $20 billion in debt as of June 2005, Whitley said. About $953 million of that is in tax-supported, general obligation bonds rated at the AAA level, she said.
If no action is taken, the credit agency would most likely put a credit watch on the state, which could eventually lose its rating, said Maurice Kauff, director of fixed-income trading for Investors Capital Corporation. If the credit rating dropped, debt repayment would rise, he said.
“The important thing is the perceived credit-worthiness of the state in the public finance market,” Kauff said.
If the people who buy Virginia’s bonds think there is a higher risk, they will want a higher return from the state, he said.
Still, “I think that would take a while for that to play out,” Kauff said. “We’ve seen these crises before. … There is nothing like a shutdown to get bureaucrats motivated.”
“Fiscally, the state is in good shape and has been for some time,” said Kevin Hall, a Kaine spokesman, who said he was confident the state’s rating would not change.
As for the budget logjam, Hall said, “Maybe [Chichester and Callahan] will benefit from the face time in an enclosed space with the governor.”
Virginia’s Debt
» Tax-supported debt: $5.8 billion
» Of that, $954 million in general obligation bonds
» All other debt: $14.4 billion
» Of that, moral obligation debt: $1.3 billion
Source: Comprehensive Annual Financial Report of the Comptroller, June 30, 2005
