Getting Back to the Best

Sausen is concerned about the promotional edge that goes to states with all three top ratings. “I just find myself envious of Virginia being able to tout itself as a triple-A rated state,” he says.

Indeed, that’s exactly what Virginia is doing with its top-rated status. “We absolutely use it as much as we can in all of our promotional efforts,” says Christie Miller, communications manager for the Virginia Economic Development Partnership in Richmond, Virginia. In 2003, when Standard & Poor’s upgraded the University of Virginia’s bonds to triple-As, the school issued a press release declaring it was “one of only two public universities in the country to hold the coveted rating from all three of the financial world’s major bond rating agencies.” 

››› The rating game is a ritual. Each year, after the legislature adjourns, a contingent of state officials—typically including the governor, the finance commissioner, and the state economist—treks to Manhattan to meet with analysts at the rating agencies. “They know our state budget inside and out,” says Gunyou.

Moody’s gave Minnesota a double-A from 1938 until 1973. Then it boosted the state to a triple-A. But in 1982, after a painful series of budget shortfalls, it cut the state back to a double-A. By the time Carlson began his first term in 1991, Minnesota had lost all of its triple-A ratings.

Fitch upgraded the state to triple-A in 1993. Then came the Moody’s upgrade. In 1997, Standard & Poor’s followed suit.

“This is very gratifying,” Carlson declared of the Standard & Poor’s upgrade in a press release at the time. The release said that Standard & Poor’s move capped “a seven-year effort . . . to put the state’s financial house in order.” 

Seven months before the end of the Ventura regime, Minnesota’s bond ratings would change for the worse. Moody’s slapped a “negative outlook” on the state in June of 2002, and eight months later, with Tim Pawlenty in charge, Moody’s put Minnesota on its “watch list.” In June of 2003, it cut Minnesota’s rating to a double-A1.

“The downgrade reflects the dramatic deterioration of the state’s financial position and the likelihood that the balance sheet will remain weak for at least two more years,” Moody’s said. Its analysts criticized the 2003 legislature’s “one-shot budget actions” and the decline in the state’s reserve fund from more than $1.4 billion in 1998 to zero in 2003.

››› Most triple-a–rated states started making significant moves to realign spending and revenues during the 2003 fiscal year, Moody’s analysts reported. In contrast, they said Minnesota got a later start, and its budget-balancing work was deferred to later years.

Last October, Moody’s praised the state for building its reserve fund back to $1 billion, and for its relatively strong debt position, and improved balance sheet. Yet the report also warned that “recent legislative sessions have been characterized by political gridlock,” including the partial shutdown of state government in 2005.