I’m starting to believe John Kasich couldn’t recognize the truth if it was wearing a name badge. Just two days ago, we discussed how the big three public financing bond rating agencies weren’t impressed with Kasich’s agenda. The Dispatch reported before the trip that Kasich hoped to impress them with his agenda.
Now, multiple news outlets are reporting that Governor Kasich is declaring victory because the bond rating agencies didn’t lower Ohio’s bond ratings:
“I went to see the ratings agencies a couple Fridays ago,” Kasich told the Rotary Club of Cincinnati at a downtown luncheon. “We are on negative watch, (but) Moody’s has decided not to downgrade us at this point.”
Kasich said he learned of the ratings decision a few hours before his Cincinnati appearance. He said Moody’s was impressed by the passage of Senate Bill 5, “which allows local communities to manage their costs. They are very positive about the fact that we have eliminated the structural deficit. What threatens our credit rating? A continuing declining economy and a disruption of the major reforms included in our budget.”
And here’s what WLWT in Cincinnati reported:
Kasich said the agencies told him that his reforms and initiatives, including Senate Bill 5, have helped put the state on a more sound footing, but warned that the initiatives must move forward or the agencies’ ratings could slip further.
A campaign is underway to put SB5 to a public vote.
Now here’s everything Moody’s says in its most recent credit rating report regarding the State of Ohio (from State Facilities Bond re: Juvenile Facility Building Fund Projects, 2011 Series A issued April 12, 2011):
The state’s Aa1 G.O. rating reflects a record of strong financial management that has been tested by long-running economic underperformance. Ohio’s rating outlook was revised to negative from stable on August 24, 2009, because of continuing economic challenges and increased use of non-recurring fiscal measures. The state’s revenues have stabilized, with moderate growth expected over the next biennium. The budget is projected to return structural balance in 2013, when excess revenues may be used to rebuild reserves. The state has moderate debt and unfunded pension liabilities, comparable to similarly rated states.
PROPOSED BUDGET REFLECTS RETURN TO STRUCTURAL BALANCE BY 2013
The governor released the proposed fiscal 2012 and 2013 biennium budget on March 15, 2011. More than two-thirds of state agencies will experience reductions in funding. Total general fund appropriations are expected to increase by approximately 1.1% (from $26.6 billion to $26.9 billion) in fiscal 2012 and 6.4% (to $28.6 billion) in fiscal 2013. Overall state spending, however, is expected to decrease 5.3%, from $62.7 billion to $59.4 billion. While general state aid to districts is budgeted to increase modestly each year, total funding would decline due to loss of federal stimulus funding, which had partially replaced state aid in fiscal years 2010 and 2011, and the accelerated phase-out of the state’s reimbursement to districts to replace the tangible personal property tax.
The budget also proposes $4.3 billion of Medicaid savings and cost containment, largely through the modernization of payment systems, negotiation of better rates with hospitals and controlling costs for behavioral health services. Pension reform shifts 2% of the pension percent of salary contribution from the employer to the employee, which would save the state and local governments an estimated $570 million annually. As in fiscal 2010 and 2011, a debt restructuring is expected in fiscal 2012, along with the privatization of five prisons and the state’s liquor enterprise, representing the bulk of non-recurring revenues in fiscal 2012 and bringing the structural imbalance down from 9% of revenues in fiscal 2011 to approximately 3% of projected revenues in 2012. If the state realizes current revenue projections, the proposed budget projects structural balance for fiscal 2013. The budget is currently under consideration by the legislature and must be enacted by June 30, 2011.
NEGATIVE FUND BALANCE IN FISCAL 2010
The state released its fiscal 2010 Comprehensive Annual Financial Report on January 28, 2010, ending a trend of late CAFRs in recent years. The undesignated, unreserved fund balance in the general fund continued a declining trend of GAAP fund balances, with the first negative ending balance since fiscal 2003, at -$141 million. The state ended fiscal 2010 with a cash balance of $139 million, 28% short of estimates. General fund revenues were $621 million, or 2.4% below projections, primarily reflecting a shortfall in expected federal revenues. The state has also announced that it will adopt multi-year financial planning, an additional improvement to its fiscal management policies.
REVENUES CONTINUE TO TREND POSITIVE
Ohio has seen better-than-expected performance across most tax sources in fiscal 2011, with tax receipts for the first nine months of the fiscal year $627 million (or 5.4%) above estimates, and 8.3% above receipts for the same period last year. The largest contributors to growth were non-auto sales and personal income taxes. Casino gaming was authorized in 2009. The gross revenues from this gaming are subject to a 33% tax, projected to result in $390 – $520 million in annual revenue largely to be distributed to local governments.
For more information regarding the State of Ohio, see our report published September 23, 2010.
The outlook for the State of Ohio is negative, reflecting reliance – though decreasing – on non-recurring measures and likely continuation of sluggish economic performance that will make it difficult for the state to rebuild financial reserves even as the national economy recovers.
What could change the rating – UP:
- Better-than-expected financial results
- Rebuilding of reserves and positive audited fund balance position
- Sustained structurally balanced operations
- Economic recovery over an extended period
What could change the rating – DOWN:
- Evidence of financial deterioration, including more reliance on non-recurring measures than projected
- Failure to reach expected revenues or downturn in revenue growth
- Failure to achieve budget’s reforms and cost savings
- Trend of negative GAAP-basis general revenue fund balances
- Decreased liquidity
- Worsening state economy, with continued job loss
There’s no mention of SB 5. Nothing at all. Instead, what Moody’s says is that the State’s bond ratings might be negatively impacted if Kasich’s budget “reforms” fail to generate the promised cost savings. Instead of praising Kasich’s agenda, they express reserved skepticism.
If Governor Kasich has something from Moody’s saying differently, produce it. But for the Governor to imply (falsely) that the credit rating agencies endorsed SB 5 and threatened that repeal could hurt Ohio’s credit rating is just one falsehood built on another. Kasich seems to have a pathological compulsion to lie. It’s shameless. It’s also embarrassing how easily it is to disprove. After all, Moody’s comments aren’t trade secrets. They’re meant to be public. They supposed to give guidance to investors.
What Kasich suggests is an endorsement of public policies that the bond rating agencies simply do not do:
“It’s going to be an interesting conversation," said Karen Krop, another senior analyst with Fitch. "Changes in policies and the ways services are delivered are not factors in bond ratings. Balanced budgets are a factor. Prolonged economic growth is a factor.
“When you talk about the privatization of assets, you have to see whether it will actually occur and if it will generate the revenues needed.” [Source: Dispatch 03/25/11]
When John Kasich’s suggests that his budget “saved” Ohio from a lower rating, he’s lying. Moody’s itself credits Ohio’s “record of strong financial management that has been tested by long-running economic underperformance.” In other words, it was because of Ted Strickland Ohio’s rating hasn’t dropped, not Kasich.
But John Kasich’s budget didn’t help others avoid seeing their bond ratings downgraded. Yesterday, the Cleveland Plain Dealer reported that the City of Cleveland’s bond rating was lowered by Fitch:
"The city’s finances will continue to be challenged given future state aid reductions combined with the sluggish regional economy."
The two-year budget proposed by Gov. John Kasich calls for deep cuts in state aid to local governments. Jackson said last week that based on Kasich’s proposal, the city faces budget shortfalls of $37 million in 2012 and $29 million in 2013.
Yep, those credit agencies are just wild about Kasich’s agenda alright…
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