COLUMBUS - Two Wall Street agencies have decided Ohio has met its budget challenge and will not downgrade its credit rating as the state goes to market to borrow about $300 million.
Moody's and Fitch decided yesterday to maintain the state's strong credit rating at Aa1 and AA+ respectively for general obligation bonds. Ohio plans bond issues within days that amount to $200 million for school construction plus about $117 million in new borrowing and refinancing for the Ohio Building Authority.
The state Office of Budget and Management had not heard from Standard and Poor as of last night and declined to comment until all three verdicts were in. Gov. Bob Taft had personally courted all three.
Even a tenth of a percent increase in interest rates due to a downgrade could have cost the state $200 million more a year over the 20-year life of a bond issue.
The new two-year, $49 billion budget that took effect July 1 is financed in part by a temporary penny-on-the-dollar surcharge on the current 5-cent state sales tax. The surcharge is expected to generate $2.5 billion through June 30, 2005. While not permanent, it apparently was enough.
“There is some precedent for sales taxes being made permanent,” said Moody analyst Nicole Johnson. “It's easier to keep a tax than to find a new one. Ohio had some sizeable shortfalls in the last years, but the good news is that the state has dealt with it.”
Moody's, however, wasn't impressed enough to remove Ohio from its negative outlook list. The most significant point against the state remains the fact that it has depleted budgetary reserves that once held more than $1 billion.