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At this rate

Virginia's sterling bond rating is just the slightest bit tarnished; it's time for the legislature to return to old-fashioned accounting practices.

Date published: 8/25/2003

STATE SEN. JOHN CHICHESTER'S recent warning that Virginia's failure to maturely address its long-term financial health could cause a lowering of its bond rating isn't just a case of crying wolf. Since July 2001, Moody's Investors Services has dropped the ratings of nine states, including our neighbors North Carolina and Tennessee, while Standard & Poor's, another of the "big three" bond-rating agencies, has downgraded five states since the recession set in two years ago.

Just like individual consumers with credit blemishes, these states, when they borrow, will have to pay more in interest to compensate for the greater risks that now attach to them. That's the road from bad to worse. Beleaguered California, whose bond rating recently was demoted, now stands to pay an extra $1 billion over the next 30 years.

Partly because of Virginia's "pay as you go" tradition--a tradition, ironically, that the Republican Party, once known for its hard-headed business acumen, is sacrificing to anti-tax dogma--the commonwealth has enjoyed top marks from all three ratings agencies (Fitch Investors Service is the third) for decades. This is a proud achievement. At the moment, only six other states can boast across-the-board AAA ratings--Delaware, Georgia, Maryland, Missouri, South Carolina, and Utah. However, Moody's latest report on Virginia carries the ominous footnote "negative outlook."

Stafford County's Mr. Chichester, the Senate Finance Committee chairman, argues that Virginia lawmakers and the governor must keep the state on sound financial footing by identifying abiding priorities and funding them adequately (see yesterday's Viewpoints section). This does not necessarily mean putting government on steroids--some programs can be shrunk or even axed--but it does require honestly matching expenses to income and avoiding the kind of gimmicks employed by former Gov. Jim Gilmore when state finances began to sour. The ratings firms aren't moralists or political philosophers; they merely want to see an ethic of budgetary integrity.

"What [bond raters] have tried to stress," Merrill Lynch's John Hallacy tells the news service Stateline.org, "is that they are looking for what they call structural balance. Simply put, that means roughly having your revenues match your expenditures with a reasonable margin of error included. It's a simple concept that is not easy to achieve in practice."

Virginia begs to differ. The state has achieved the concept through long practice. Only now is there even a slight smudge on our escutcheon. The legislature can rub it off, but not by pretending that legitimate public obligations, ambitious goals, and static tax rates can all be friends forever. That's AAA nonsense.

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Date published: 8/25/2003