On Friday, the McDonnell administration issued a press release trumpeting Mood’s Investor Services kind words about the transportation tax hike. That’s understandable. The governor is taking hits from just about all sides over this issue and, from reports I’ve been receiving, is getting a tad defensive, if not outright angry, over the criticism.
But that defensiveness is also generating some rather novel arguments about the benefits this tax increase will deliver to one and all. Take, for example, this phrase buried in the most recent press release;
The failure to properly fund transportation was hurting Virginia’s economic competitiveness, it was hurting our citizens ability to find good paying jobs, and it was imperiling Virginia’s critically important credit rating.
That’s the first time I can recall in this entire debate that without a tax increase for roads, Virginia’s credit rating would suffer.
And it strikes me as a familiar fib.
The section of the Moody’s report dealing with Virginia calls the tax hike “credit positive,” but does not go into any more detail on the point. Moody’s has a negative outlook on Virginia’s credit rating, but that is largely due to the federal government’s fiscal instability. Back in July, 2011, Moody’s put Virginia’s AAA bond rating under review and gave the state a negative credit outlook. Why?
• 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
Nothing in that list relating to transportation funding at all. The dark cloud on the horizon is Uncle Sam.
So where does the threat to the bond rating come from? The truly charitable might be able to point to the final paragraph of the new Moody’s report:
The dedicated transportation funds come at a time when Virginia’s economy is highly exposed to federal downsizing. Defense cuts included in sequestration in particular would have an adverse impact on the commonwealth and its ability to address its transportation needs.
Putting aside the notion that transportation projects in Virginia have not previously enjoyed dedicated funding sources (they have several), where is the threat to the state’s bond rating?
It’s not there.
If anything, it would appear the administration is taking a page straight out of the Warner/Kaine playbook when it comes to defending enormous tax increases. Recall that in 2004, then-Gov. Warner and his willing handmaids in the press repeatedly said that without a tax hike for police, schools and more, the state would lose its AAA bond rating. The credit agency making such statements? Moody’s. Jim Bacon did some additional research on the entire episode and found it was one of the greatest con jobs in recent Virginia history.
Flash forward to 2006. Then-Gov. Tim Kaine is in one of his full-court presses for a billion dollar tax hike to fix…transportation. Richmond is in an uproar and faced the possibility of a government shut down. But who wasn’t at all concerned about the state finding additional money for roads? Moody’s Investor Services. As Michael Shear wrote at the time:
In an April 24 report on some of the state’s upcoming bonds, Moody’s noted that “the current situation adds a small degree of uncertainty, although it is expected that the budget situation will be resolved well before the first interest payment on the bonds is due in November 2006.”
But it is Kurtter’s position on traffic that really undermines Kaine’s argument for an immediate $1 billion-a-year tax increase to pay for road and rail projects across the state.
Kurtter praised Kaine’s effort to address the state’s transportation infrastructure. But he said he saw little reason traffic problems for commuters and businesses should be a cause for worry for people thinking of investing in Virginia bonds.
“The fact that the roads are choked in Northern Virginia doesn’t seem to be affecting the larger economic results,” Kurtter said, noting the job growth and booming economy in the region. “It’s pretty hard for us to say that failure to fund transportation projects in 2007 is going to wreak havoc on the state’s economics.”
That was seven years ago and, undeniably, economic conditions are different today. But the arguments for more taxes, and specifically, more taxes for roads, appear to be evergreen and bipartisan.
And they all involve appeals to the AAA bond rating.
Mark Warner played the AAA card like a master. Tim Kaine botched it horribly. And now Bob McDonnell is giving it a go.
How disappointing.
