State maintains ‘triple-A' bond rating but danger lurks

Moody's, Fitch and Standard & Poor's review every state's financial health and award a grade. Those grades used to set an interest rate for the state when it goes to sell revenue bonds for capital projects and other uses. The higher the bond-rating, the lower the interest. In May, for example, the triple-A rating saved the state an estimated $34 million in debt service and refinancing costs.

All three rating agencies gave Georgia their highest – the coveted triple-A – rating, making it only one of seven states to maintain that status.

But, in its analysis of the state's financial situation, Moody's said Georgia state revenues are expected to drop by $1.26 billion in the current fiscal year. In August, Gov. Sonny Perdue lowered his revenue estimate by $900 million – or $360 million less than what Moody's said is likely.

The revelation by Moody's could mean state agencies and programs will be forced to make deeper cuts in the months ahead.

What is unclear, however, is whether Moody's estimated the more extensive revenue drop through its own analysis or from information provided by Perdue's office.

"As we have done for the past 18 months, we are watching revenues closely and will make adjustments as necessary," said Bert Brantley, the governor's communications director.

Still, the news from New York on the bond rating was welcome. The news is particularly timely because the state is set to sell $700 million in bonds next week. The proceeds are to go to school construction, higher education facilities, public safety and road projects. The sale was approved in the 2010 state budget.

"We are doing the best we can to weather this economic storm and keep Georgia's fiscal position heading in the right direction," Perdue said in a statement. "These ratings not only recognize our efforts to manage the state efficiently, but will also result in savings for Georgia."

Overall, Moody's says the outlook for Georgia's bond rating is "stable, based on Moody's expectation that the state will take appropriate actions to manage the challenging economic conditions and revenue shortfalls it faces, and that Georgia's legal provisions and historically conservative approach to financial management will help preserve balanced operations."

In its analysis Moody's said it was maintaining the state's high rating "based on conservative financial management enforced by statutory and constitutional provisions that have helped keep financial operations largely balanced."

Moody's acknowledged, however, that the state's reserves are nearly depleted and that the state's "relative economic performance is weakening."

But, the firm warned that several factors could drive the rating downward: an increased use of one-time dollars to address recurring needs; a reliance on optimistic economic assumptions or revenue forecasts to balance the budget; a failure to adopt a fiscal plan to keep a balanced budget when federal stimulus funds expire; and an inability to manage "financial stress."

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