Standard & Poor’s has revised its outlook on New Hampshire’s general obligation AA bond rating to negative from stable. The negative outlook also affects New Hampshire’s guaranteed bonds and the New Hampshire Business Finance Authority GO bond ratings.
“The negative outlook reflects our view of the state’s thin financial position and significantly underfunded pension funding levels, which we believe lowers the state’s flexibility to withstand the potentially large effects of the loss of Medicaid Enhancement Tax revenue on its finances,” said S&P analyst Henry Henderson April 21.
On April 11 a Hillsborough County Superior Court judge ruled that the state’s MET was unconstitutional because it taxed hospitals differently than other medical service providers, Henderson said. Net MET revenues account for $72 million of fiscal 2014 revenues or 5.2% of general fund reserves.
The state has a rainy day fund balance of $9.3 million or less than 1% of expenditures, which Henderson described as a relatively low balance. In addition to the rainy day fund, the state has $15 million in undesignated fund balance whose use had not yet been set.
The state is appealing the court decision to the state Supreme Court.
“The state has publicly identified potential responses if the revenue loss is upheld that include amending the MET tax, identifying other revenue sources, and reducing expenditures, and the legislature is currently in session and is working with the governor, but no final decisions have been made on any particular course of action,” Henderson said.
Henderson also noted that the state has funded its pensions at 57%, among the lowest levels among the states.
For positives, Henderson noted the state’s strong personal incomes, relatively low unemployment, and rapid debt amortization.
If the state supreme court upholds the lower court’s decision, Henderson said S&P could drop the state’s rating.
