CHICAGO — New Wisconsin Gov. Scott Walker hasn’t released a proposed fiscal 2012-13 budget to address a $3.3 billion deficit, but Standard & Poor’s is confident the state will close the gap and maintain its current AA rating due to its “financial discipline.”
In a state review published Tuesday, the agency said it expects no change in the AA rating and top short-term marks assigned to $7.25 billion of outstanding general obligation bonds over the next two years. Wisconsin’s outlook is stable, even though $3.4 billion of its appropriation-backed debt was rated a notch lower.
“We believe the state will continue to successfully address any budgetary imbalances that might occur during the next biennium,” said analyst John Kenward. “Our stable outlook reflects our expectation that the state will maintain minimal but adequate reserves, bolstered by access to alternate liquidity.”
All three major rating agencies recently affirmed Wisconsin’s GO ratings ahead of a $430 million issue earlier this month. Fitch Ratings rates the state AA and Moody’s Investors Service assigns an equivalent Aa2.
The new Standard & Poor’s report said the rating is supported by the state’s diverse economy and a strong government framework that requires a balanced budget and gives priority to repayment of GO debt.
The rating agency also takes a positive view of Wisconsin’s historic ability to quickly adjust its budget to maintain fiscal balance.
The state has a moderately high debt burden, which is somewhat offset by its fully funded pension system.
Its weaknesses include a low level of operating reserves, a heavy reliance on one-time revenues to balance the current two-year $61.8 billion budget, and a large general fund deficit of $2.9 billion when generally accepted accounting principles are applied.
Wisconsin officials anticipated closing the biennium with a $275.1 million general fund balance but have since revised that all the way down to $10 million.
Total tax revenues are expected to increase $572.6 million, or 4.7%, in fiscal 2011 from 2010 — about 1.4% under projected levels.
The Wisconsin economy has slowly been on the mend. Individual income taxes make up about 27% of general fund revenues, while sales and use taxes make up 18%. The latest projections call for revenue growth of 4.7% in fiscal 2012 and 3.3% in fiscal 2013.
The state population has grown 6% over the past decade, but that rate is still shy of the 9.7% national average. Manufacturing remains a driving force in the Wisconsin economy but higher-paying manufacturing jobs are down. Agriculture continues to play a key role.
Walker will deliver his state of the state address Jan. 25 and is expected to release his proposed budget next month. He opposes using tax increases to close the budget deficit.
