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THE FREE LANCE-STAR
Just like everyone else, the state of Virginia wants to keep a good credit rating.
To that end, Gov. Bob McDonnell and several staff members and legislators will be going to New York next month to meet with the bond rating agencies that determine the state's credit rating.
The group plans a one-day series of meetings with S&P, Fitch and Moody's.
McDonnell said he has heard nothing that would indicate the state's treasured AAA bond rating is in jeopardy. But, he said, he has never met with the agencies, and wants to explain to them face-to-face the positives he sees in Virginia's financial situation.
"I want them to have confidence in what we're doing," McDonnell said this week in an interview. "I know they constantly review Virginia's finances. I want to be able to talk to them personally about how dramatically our finances have improved."
Like many states, Virginia has suffered financially from the recession, but it has done better than many.
The AAA bond rating is something state lawmakers and officials have long valued. It's the highest rating available, and having it allows Virginia to borrow money at lower rates. It also sends a signal that the state is considered financially stable and well-managed.
The rating was in some danger back in 2004, when the ballooning cost of the car tax cut and an imbalance between revenue and spending prompted Moody's and other agencies to put Virginia on its watch list.
The threat helped prompt legislators and then-Gov. Mark Warner to approve a package that raised some taxes (although it lowered others), earning them the ire of many Republicans.
The bond agencies kept Virginia's AAA bond rating that year.
McDonnell said he wants to explain to the rating agencies how his plan to shore up the state workers' retirement system will work. He said underfunded pension plans are something that troubles the agencies, and he plans to tell them how his proposal--which would require state workers to pay into the retirement fund for the first time since 1983--will help ease the retirement system's growing problem with underfunding.
"I want to go up there and make sure they are well aware of our changes that should improve our standing, but we're not aware of any concerns that they've got," McDonnell said.
State Sen. Edd Houck, D-Spotsylvania, will be going on the trip with McDonnell. Houck is a senior member of the budget-writing Senate Finance Committee, but this will be his first visit to the rating agencies. He is preparing by talking to former state
"I think it's a great opportunity for us to hear directly from the credit rating agencies just where Virginia stands," Houck said. "This is just a great opportunity to find out, learn, become more informed about the bond rating agencies and how they see Virginia."
Houck is concerned about how the agencies will view McDonnell's recent proposal to use bonds--some of which were authorized several years ago--to pay for transportation projects.
"Coming at a time when the governor has recommended extensive bonding for transportation programs, I have to assume there's some connection to that" and the meetings, Houck said. "It's weighing heavily on my mind. Hopefully, this will be an opportunity to hear directly from the rating agencies about our standing, our debt capacity, his new proposal, how it may or may not impact their analysis of Virginia's overall financial business."
Houck said he isn't fully conversant with the specifics of McDonnell's transportation plan but is concerned that the bonds involved could trouble the rating agencies. Last month, the Senate Finance Committee heard a presentation on how Virginia has increasingly been relying on debt to pay for things that it used to pay for in cash.
The state's outstanding tax-supported debt grew 54 percent, $3 billion, from 2005 to 2009. The state limits itself to debt service of no more than 5 percent of revenues each year, although the debt capacity advisory committee recently recommending changing that to an average over 10 years.
Houck said the AAA bond rating is "a key cornerstone to Virginia being a fiscally sound state," and it's critical that Virginia keep that rating.
"We don't want to run afoul of that, and I'm not suggesting we are, but when you start changing your debt capacity limitations, it creates all those concerns, those questions," he said.
The trip to New York is scheduled for Jan. 4.
Chelyen Davis: 540/368-5028
Email: cdavis@freelancestar.com
