Fitch Ratings downgraded Maine’s general obligation bonds to AA from AA-plus Tuesday evening.
This drop affected $472 million in debt.
In addition, Fitch dropped the rating of Maine Municipal Bond Bank’s general resolution bonds to A-plus from AA-minus. Maine supports these bonds with its moral obligation to replenish the debt service fund. This drop affected $1.4 billion in debt.
The drop in the Bond Bank’s rating is linked to the drop in Maine’s GO rating, Fitch reported.
After the downgrade, Fitch revised its outlook for Maine to stable from negative.
“The one-notch downgrade on Maine’s GO bond rating reflects its reduced financial flexibility with weak reserve levels and limited options to address a difficult budgetary situation,” Fitch director Eric Kim and senior director Karen Krop wrote in a press release.
In December the state revised down its estimates of fiscal year 2013 revenues by 1.2%, the analysts reported. Adding to the budgetary pressures, the state now expects Medicaid expenditures to exceed budgeted levels by $87 million.
Republican Gov. Paul LePage has taken steps to deal with the budget problems but some of these will cut an already “modest” budget reserve, the analysts wrote.
On the positive side, the state has a conservative debt position with low debt ratios and responsive financial management, the analysts wrote.
Maine Treasurer Neria Douglass responded to the Fitch downgrade by saying, “We need to invest in Maine’s future. We can start by issuing the bonds that voters approved in June 2011 and November 2012.”
Until recently LePage was opposed to releasing the voter-approved bonds. On January 15 he apparently changed his position by speaking in favor of issuing the bonds.
“Everyone knows that taking a loan for a car to get to work is part of improving your personal finances,” Douglass said.
The November 2012 elections shifted control over both state houses to the Democrats “raising the likelihood of increased conflict with the Republican governor over the supplemental budget and the biennial budget,” the Fitch analysts wrote.
“We need to work together for the good of our state,” Democrat Douglass wrote.
“This news is a wake-up call that reminds us that our priorities must be on growing Maine’s middle class and protecting our economy,” said speaker of the Maine House Mark Eves. “Governor LePage’s current approach to the budget and revenues needs to be more collaborative and less like the obstructionist approach of Republicans in Washington.”