Moody’s puts Virginia AAA rating under review
By Norman Leahy | Tuesday, July 19th, 2011 | Policy, VirginiaAs I noted several weeks ago, if the federal government’s AAA rating is cut owing to skittishness over the debt ceiling, Virginia’s AAA rating could suffer as well. And now, Moody’s has made the possibility of such a downgrade quite clear:
– Moody’s Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody’s July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody’s announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.
Other states Moody’s rates as AAA aren’t on the list. So why Virginia, but not, say Alaska or North Carolina? I’ll let the bullet points do the talking:
• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody’s Economy.com measure of employment volatility due to U.S. fluctuations: Above average
• Federal employees as a percentage of the state’s total employment: Above average
• Capital markets risk: Low due to a small amount of puttable variable rate debt outstanding
• Federal procurement contracts as a percentage of state gross domestic product: Above average
• Medicaid as a percentage of total expenditures: Below average
• Available fund balance as a percentage of operating revenue: Below average
While the ratings agency makes it clear that any downgrade of state debt like Virginia’s would be on a case-by-case basis, the points above still ought to be quite sobering for those who believe that Virginia — business friendly, well-managed commonwealth that it may be — controls its own fate. It does not.
Ultimately, it’s the fate of our impoverished Uncle on the Potomac that decides. Remember that as the resident political class beats its breast over its already spent budget surplus.
(Cross-posted at Score Radio Network)
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About the author
Norm Leahy has written about Virginia and national politics online since 2002, beginning with One Man's Trash (OMT), and continuing through Bacon's Rebellion (both the blog and the e-zine), Sic Semper Tyrannis, NBC12's Decision Virginia, Richmond.com and Tertium Quids. He is the chief blogger at "The Score" and a producer of "The Score" radio show as well as being a Washington Examiner contributor.
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3 Responses to "Moody’s puts Virginia AAA rating under review"
Again, absent genuine and radical reform, the kind currently politically unthinkable, the ship sinks. I believe we can construct “lifeboat Virginia” but we had better get cracking, because no one in any position of power, save a scant few, seem to “get it.”
We have everything we need to succeed in Virginia: exportable food, energy, and manufacturing; deepwater ports; a comparably business-friendly (but still overweening) regulatory climate; hard working and fundamentally honest people. Note the report cites our too-great dependence on federal money, which Moody’s correctly expects to dry up. We have the tools we need. If we can’t make this work, eternal shame on us. We need to rekindle our love affair with our farmers, miners, and manufacturers. We need to be prepared to tell the business-crushing federal regulatory regime to take a long walk off a short pier. I have some suggestions on what we can use the Federal Reserve building in Richmond for, but I will save them for another day.
We have to admit that we can’t afford to pay people to do nothing. All of the heart-wrenching emotional appeals in the world won’t make the excess wealth available. Neither will saying “Grover Norquist!” 1,000,000 times.
Anyway, as this crisis plays out the traffic problems in NoVa will abate, and you will actually be able to drive south from DC on I-95 at any time day or night without hitting stop-and-go. That will be nice.
I guess we will need some new polish for the McDonnell image. Basking in the glow of new transportation projects, folks are suddenly realizing it is based upon a bed of borrowing. Not only that, it depends upon revenue from the feds, just cut in the republican budget passed today in the House. Fact is, the Governor was warned this borrowing, without the revenue increases to back it up, was putting us at risk, but of course, he ignored this sound advice. Afterall, he got his headlines and his interviews on Fox; what more can a Governor hope for? Since most reporters have not a clue about how to gauge risk, he got away with it at the time. Now, times have changed.
P.S. This post is timely, as I recently posted something on RTP’s site titled “Ding, Dong, The Witch Is Dead: Envisioning The Collapse Of The Federal Government.” You should read it. Here’s a teaser:
“…the present political establishment fully represents the status quo, and the maintenance of the status quo. They have their heads buried so far in the old paradigm that ‘Extend and Pretend’ is the only game they know. So, that is the game they will play. Until they can’t.
There will be a debt deal. The national debt will be raised. The can will be kicked down the road, one more time. At some point, perhaps quite soon, the markets will say ‘No Mas.’ And then, the ceremony is innocence is drowned.”
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