Virginia Retains AAA Bond Rating, Officials Say
By Michael D. Shear
Washington Post Staff Writer
Thursday, May 27, 2004; 2:10 PM
RICHMOND, May 27 -- Wall Street reaffirmed Virginia's financial reputation today, saying the state's decisions to revamp the tax code and freeze a popular program to cut car taxes justify its triple-A, best-in-the-nation credit rating.
Less than three weeks after lawmakers ended a marathon 118-day legislative session by approving a $60-billion, two-year budget, Moody's Investment Service formally ended its warning to its clients that Virginia's finances were uncertain. In a short release, the rating agency said investors should buy the state's bonds with confidence.
Moody's said the improving state economy, the car tax freeze and the willingness to impose higher taxes "will restore the state's structural balance and illustrate the strength of the Commonwealth's long tradition of conservative financial management."
The statement by Moody's is a victory for Gov. Mark R. Warner (D), who had repeatedly warned that a failure to fix the state's imbalance between revenue and spending would jeopardize the state's AAA bond rating, which it has held since 1938. A lower bond rating would have increased the cost of borrowing and left a permanent stain on the state's financial reputation, he argued.
At a news conference, Warner hailed the news from Moody's as a sign that he and lawmakers did the right thing.
"Like any family or business, we value our good credit," Warner said. "We have now restored Virginia's balance sheet to good standing."
Sen. John H. Chichester (R-Stafford), the chairman of the Senate Finance Committee, said he was "elated" by the news. Chichester, who had proposed an even larger tax increase than Warner, said the state needs to continue its vigilance against overspending in the future.
"If we had done nothing, I'm convinced we would be at a AA rating now," Chichester said. "Now, it depends on how we conduct ourselves. We have to closely watch our debt."
Lawmakers who had opposed tax increases said today that they were pleased by Moody's action. But they said the action was the primarily the result of the state's improving economy, which is likely to create a surplus of several hundred million dollars by the end of the financial year on June 30.
House Majority Leader H. Morgan Griffith (R-Salem) said he believes Virginia would have retained its good standing even without the kind of tax increases the legislature approved.
"The improving economy helped a lot," Griffith said. "Twenty-two percent growth in back to back months is pretty impressive."
Del. Robert G. Marshall (R-Prince William), an ardent anti-tax lawmaker, criticized Moody's, saying the analysts at the firm "are acting like politicians with a liberal agenda rather than bankers." He added that "Virginia should be run by Virginians, not Wall Street."
Told of the comment, Warner said "the absurdity of that statement ought to stand on its own."
Virginia's financial reputation on Wall Street became a key factor in the debate over taxes on Sept. 3, when Moody's placed the state on its "watch list," alerting investors that it may downgrade the state's overall credit.
Moody's is one of three private firms that rate the quality of government bonds.
Warner used the Moody's threat throughout his six-month effort to convince reluctant lawmakers to raise taxes. The tactic was effective, political analysts said, because no one in either party wanted to be blamed for losing what had become the financial equivalent of the Good Housekeeping seal of approval.
In February, during the height of the tax debate in the General Assembly, the state's chief investment adviser told a joint meeting of the legislature's money committees that a failure to act could lead to a "catastrophic" blow to the state's financial reputation.
"Basically, the ball is in your court," Steven J. Kantor told the lawmakers at the Feb. 11 meeting. "I don't think it will be possible to maintain the rating if you ignore your infrastructure," he said. Cutting core services would be "catastrophic in terms of Moody's opinion."
© 2004 The Washington Post Company