ST. PAUL, Minn. – The downfall of Minnesota’s credit rating would be the first downgrade since 2011, and would negatively affect the state’s ability to borrow money going forward.
As Alpha News reported, Standard & Poor’s placed Minnesota’s AA+ credit rating on what it calls “CreditWatch with negative implications” due to the budget fight between Governor Mark Dayton and the Republican led legislature. Funding for the legislature was line item vetoed by Dayton in an attempt to force Republicans back into special session over a number of provisions.
Senate Majority Leader Paul Gazelka (R-Nisswa) has made it clear that the Senate will be running into issues paying for the Senate Legislative Office Building as a result of the governor’s actions. This is what has caused Standard & Poor’s to take a hard look at Minnesota’s credit rating.
“If the state does not appropriate for the rental payments our criteria works such that this would impact the GO [General Obligation] rating and the ratings linked to the GO of the state as this would be seen as a lack of willingness to pay even though the state has the ability to pay the debt service,” Standard & Poor’s Global Ratings credit analyst Eden Perry told Alpha News.
Standard & Poor’s, Moody’s Investor Services, and Fitch Ratings account for 95 percent of the ratings business, in large part due to regulations by the Securities and Exchange Commission.
Throughout the 1980s and most of the 1990s Minnesota had a high credit rating as rated by all three major national credit ratings agencies, but not the highest. According to a Minnesota House information brief, the state held the highest rating, from all three agencies from August 1997 to 2003. A higher rating makes it easier for an entity to borrow money at a lower rate according to Perry.
In June 2003 Moody’s Investor Services downgraded the state to it’s Aa1 category, the next lowest. It took until July and September 2011 for Standard & Poor’s and Fitch Ratings to both drop Minnesota from their AAA ratings to AA+ ratings where the state currently sits.
If Minnesota were to face downgrades this would be the second batch of credit rating drops for the Dayton administration. Where Standard & Poor’s would rank Minnesota following failures to make payments on the building is still up in the air.
“The final rating outcome on the state’s GO rating would be determined by the rating committee,” Perry said. “it is too early at this stage to say what that would be.”