Virginia Retains Bond Rating At AAA, Best in the Country
Virginia's reputation on Wall Street became a key factor in the debate over taxes when, on Sept. 3, Moody's placed the state on its "watch list," alerting investors that it was considering a downgrade of the state's credit.
Moody's is one of three private firms to rate the quality of government bonds. Virginia has about $4 billion in outstanding debt that might have been affected by the change in a credit rating.
Warner used the Moody's threat throughout his six-month effort to persuade 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."
Several Republican delegates viewed the focus on the state's bond rating as a tactic used by Warner and Chichester to keep up the pressure for a tax increase. They noted that Kantor also said Virginia could have restored its rating by cutting services instead of raising taxes.
"I remain unpersuaded of the timing, the scope, the magnitude and the necessity of raising taxes by $1 billion," said Del. William R. Janis (R-Goochland). The bond rating "was used to create a crisis mentality."
But others hailed the Moody's decision. Alexandria Del. Brian J. Moran, chairman of the House Democratic Caucus, said the action serves as vindication for the governor and for lawmakers who voted in favor of the tax package.
"The rescue of Virginia's AAA bond rating is proof positive that the budget and tax reform plans passed by House Democrats were the right steps to keep Virginia moving forward," he said.
© 2004 The Washington Post Company