Standard & Poor’s is one of the three major credit rating agencies that has enormous influence in shaping the price and rates for Ohio’s bonds. Earlier this week, it and the other two major credit reporting agencies turned up the pressure on Speaker Boehner and the Congressional Republicans when it threatened to downgrade the credit rating of the United States if a deal on the debt ceiling isn’t reached soon.
On Friday, S&P revised Ohio’s credit rating (may require free registration to view.) While the credit rating has stayed the same, the raters changed Ohio’s outlook from negative to stable. Here’s precisely the reasons given by S&P for the change:
Standard & Poor’s Ratings Services revised its outlook to stable from negative on the ‘AA+’ rating on Ohio’s general obligation (GO) bonds. The outlook revision reflects the state’s progress in restoring structural budget balance through fiscal 2013 and the modest economic recovery underway, which has stabilized revenues. (emphasis added.) At the same time, we assigned a ‘AA+’ long-term rating to Ohio’s $416.75 million GO refunding bonds.
"The outlook revision reflects the state’s progress in moving toward structural budget balance through fiscal 2013 and the modest economic recovery underway, which has stabilized revenues and allowed for a contribution to the budget stabilization reserve fund," said Standard & Poor’s credit analyst Robin Prunty. (emphasis added.)
After a significant decline through the recession, Ohio’s economy is steadily recovering. Ohio’s unemployment rate has stabilized and has fallen to 8.6% through May 2011 from a peak of 11.0% in March 2010. The state experienced positive employment growth in 2010 and through the first quarter of 2011, but employment remains well below its pre-recession peak. Positive employment trends have contributed to income and consumer spending growth, which has positively affected revenues.
In other words, due to the Strickland surplus and the economic recovery that began in early 2010 (the one that Kasich during the campaign denied was significant), Ohio’s fiscal outlook is now stable. One of the biggest factors that lead to the change in outlook was the nearly a quarter of billion dollars placed into the “rainy day” fund from the Strickland surplus. This is hardly surprising news since Moody’s said back in April that putting money into the “rainy day” fund would result in a change of their rating for Ohio’s outlook.
Note that S&P doesn’t say that the Kasich budget has put Ohio in a structural balance. In fact, reading what S&P says in full makes it clear that it’s been the moderate economic recovery’s lifting of state revenues that has put Ohio on a path of fiscal stability. In other words, Kasich has it backwards. It’s the economy, not the actual budgetary changes Kasich has made, that accounts for “balancing” of Kasich’s budget.
And political rhetoric from Kasich and his GOP legislators aside, that’s really not in dispute. If you look at the Kasich Administration’s actual numbers, you’ll see that they are banking heavily on additional revenues from economic growth to keep their budget balanced (in fact, general revenue spending, which is traditionally been the accepted measure of State spending since that isn’t “pass through” revenues from the federal down to the local level, is going UP by billions, the Administration is so confident.) The fact is that Kasich’s budget is only balanced if their prediction of a sustained economic recovery over the next two years pans out. If not, we’ll suddenly find ourselves with a deficit that could be over a billion.
Still, all of this hasn’t stopped Kasich for claiming credit, even though S&P didn’t give him any:
"This is great news for Ohio," the governor said in a prepared statement. "Standard & Poor’s decision to improve Ohio’s credit outlook for the first time in two years is a real show of confidence in the positive things we’re doing. It’s encouraging that our accomplishments are beginning to move the needle like this and be noticed by independent financial analysts like those at Standard & Poor’s." (Source: Cleveland Plain Dealer)
Kasich, of course, has it entirely backwards. What S&P said is that it was Strickland’s handling of the economy and the budget that put Ohio in a course in which Kasich could have a structurally balanced budget and replenish the “rainy day” fund to the tune of nearly a quarter of a billion dollars. Kasich didn’t get praised by S&P anymore than his prior entirely false claims that these agencies “endorsed” his budget or threatened that a repeal of SB 5 would harm Ohio’s credit rating.
Either that, or the Kasich’s “Jobs Budget” is so totally fuckin’ awesome that it has ripped through quantum mechanics, repaired the economy a year before anyone knew Kasich would be Governor, and sent money back in time so that the “rainy day” fund could be replenished at the end of the fiscal year on June 30th.
Instead of being an endorsement of everything Kasich has done, what S&P’s statement on Friday says is everything that Kasich used to get elected was a fraud. The reality is that in 2010 Ohio was in a remarkable economic recovery, just as Governor Strickland had said and that Strickland had actually handed the State’s budget remarkable under enormously difficult fiscal challenges. That’s what Friday’s S&P statement actually says.