LANSING, Mich. (AP) – Gov. Rick Snyder plans to head to New York City soon with an upbeat message for bond rating companies: Michigan is on its way back.
The state lost its top AAA bond rating from Standard and Poor’s back in 2003, and years of bad economic news limited its ability to improve its ranking with any of the three major agencies that rate state debt.
Now Snyder thinks the state’s rosier economic outlook – it’s adding jobs this year for the first time in 11 years – and the fiscal restraints imposed in the budget that passed the Legislature on Thursday might cause the rating agencies to reassess. A higher rating would save the state money, because it would be cheaper for school districts to borrow for new buildings and for the state to borrow for new construction projects.
If the agencies agree to raise Michigan’s ratings, the Republican governor could point to that as independent evidence that the state’s reputation and bottom line are being helped by unpopular sacrifices in the budget such as less money for public schools and universities and bigger tax payments from retirees and the working poor.
A trip by the governor and top Treasury and budget officials to present the state’s case in New York would be to “show the progress that Michigan is making, that we’re coming back, and that the steps we’re taking are signs of our stronger fiscal health,” Snyder spokeswoman Sara Wurfel said. She said the visit is likely to take place in June.
Treasury Department spokesman Terry Stanton said the state “would save millions of dollars a year” if Michigan’s rating improved a notch or returned to a AAA rating. He didn’t have specific numbers.
Michigan still has investment-grade bond ratings from the three agencies: AA- from Fitch and S&P, and an Aa2 rating from Moody’s. That’s two steps from the top of Moody’s scale, and three from a top AAA rating at S&P.
Bond analysts say it will take time for Michigan to move up, even with an improving financial picture.
“The state could achieve a higher rating over time if it strengthens its budget reserves and maintains budget balance without resorting to one-time measures,” Moody’s analyst Ted Hampton said Friday. “By almost any economic measure you look at, the state was at the bottom in the last decade. Returning to some kind of performance that’s more along the lines of what other states are doing also could lead to an improved rating over time.”
Besides the usual ratings, S&P analyst David Hitchcock rates states on a four-point scale, with one being the top score. All 13 states with an S&P AAA rating have overall scores of at least 1.5, including nearby Indiana and Minnesota.
Michigan’s governmental framework – its ability to raise revenue, cut expenses and keep the budget balanced – gets a 1.5, he said. But he gives Michigan an overall score of 2.1, held back by its still-recovering economy, 10.2 percent jobless rate, and its budgetary performance including a barely-there $2 million rainy day fund.
“The economy is the one thing that scored farthest away,” he said. “That will weigh you down.”
Despite the hit that Michigan took as it watched 800,000 jobs disappear since 2000, the ratings agencies give the state high grades for fiscal management. Democratic Gov. Jennifer Granholm never went to New York to promote raising Michigan’s bond rating, but even the lower rating that occurred on her watch is considered “high grade.”
“Michigan has demonstrated strong management by keeping its . . . fund balances positive even during the auto sector restructuring,” an April report from Moody’s said.
Snyder, a former Gateway computer executive and venture capitalist, recently told the Michigan Hispanic Chamber of Commerce that he thinks the fiscal restraint shown in the new budget that takes effect Oct. 1 could justify raising the state’s credit rating. He’s putting $255 million into the rainy day fund and says he has eliminated one-time fixes to fill shortfalls while cutting spending to be more in line with revenues.
“It really focuses on making Michigan strong for the future in terms of being fiscally sound,” Snyder told reporters after lawmakers passed the $47.4 billion budget Thursday.
It’s unlikely that Snyder’s initial visit to the ratings agencies will be enough to secure a higher credit rating. The agencies will want to see more long-term evidence that the new governor’s changes are putting the state on firmer financial footing, analysts said.
Robert Ward, deputy director at the Rockefeller Institute of Government in Albany, N.Y., said many states are trying to repair credit ratings pushed down by the national recession and falling tax revenues.
“It’s been an extraordinarily challenging time for all states over the past three years, and for Michigan much longer than that,” he said. “A lot of states will be hoping they can improve their credit ratings over the next year or two.”
(Copyright 2011 by The Associated Press. All Rights Reserved.)