Two companies that keep track of a borrower’s ability to repay loans have waved a caution flag at Mississippi.
Fitch Ratings has downgraded the state’s credit rating by one notch on $4 billion in debt, while Moody’s Investor Services lowered the state’s credit outlook to negative.
These changes are noteworthy because they could increase the interest rate on the state’s future borrowings. It’s less of a big deal today because interest rates are probably as low as they’ll ever be in our lifetimes. But in a few years, when rates inevitably go up, downgrades like last week’s can cost taxpayers a lot more money in interest payments. Or they can force the state to borrow less money for capital improvement projects.
The ratings agencies’ actions are based squarely on some of the Legislature’s recent decisions.
Both Fitch and Moody’s noted that the state took $110 million out of its rainy day fund to balance the budget that ended June 30. It also is starting the new budget year with a deficit that has been attributed to an accounting error, and most predictions say Gov. Phil Bryant will have to use more rainy day money before June 2017.
Fitch Ratings called Mississippi’s borrowings well above average for a state. Moody’s noted that emergency reserves have decreased sharply in the past two years.
Perhaps worst for Republicans who are determined to cut taxes, both agencies questioned the wisdom of the $415 million tax cut that will be phased in over a decade and passed in spite of a tightening financial situation.
Reaction to the downgrades has come from both the governor and State Treasurer Lynn Fitch. So far, Fitch is making more sense.
The treasurer noted that even small credit downgrades can be expensive, and so the Legislature needs to stick to its budgeting rules — including spending only 98 percent of a year’s anticipated revenue. It must contain overall spending and reduce its annual borrowing.
A statement from the governor last week said the state budget has increased by 24 percent in the past four years, which is five times higher than the inflation rate. He added that he hopes the ratings downgrades are “a wake-up call for those whose only solution to every problem is to spend more money on it.”
Bryant and his fellow Republicans have been in charge of state government for the prior four years. So if anybody’s solution to a problem has been to increase spending, it’s the GOP.
To be fair, much of the spending increase is making up for deep cuts forced on the Mississippi budget by the 2008 recession. The governor is right when he says the current rate of increased spending is unsustainable, but he signed all those budget bills. If he’s serious about reducing spending, he needs to put some ink in his veto pen.
The ratings agencies are telling Mississippi what to do. They’re against raiding the rainy day fund and they are concerned about the upcoming tax cuts. The larger question is whether Bryant, Lt. Gov. Tate Reeves and House Speaker Philip Gunn will listen.
Recent history tells us that seems fairly unlikely.
