President of the Virginia Institute for Public
Policy, publisher of Virginia Viewpoint.
Gov. Mark R. Warner believes that Virginia’s AAA
bond rating is threatened by the depletion of the
state’s reserve fund and declining revenues.
The governor claims that increasing the
overall tax burden on Virginia’s families by about
$1 billion will solve the problem.
really should know better.
Virginia’s bond rating, like your own
credit rating, assesses revenues and obligations.
Most pundits talk as if the Common-
rating existed in isolation, but that is not the
credit rating process considers the total
burden falling on the taxpayer from all sources.
In Virginia, a complex web of legal decisions
and statutes disfranchises taxpayers, freeing
irresponsible public officials to bury our children,
our grandchildren, and us under mountains of debt.
real threat to Virginia’s AAA bond rating is
profligate debt issuance.
Higher taxes are not going to solve the
commonwealth’s bond rating is, like your personal
credit rating, an assessment of the probability of
conditions affecting revenues and existing debt
burden drive the rating process.
We all know Virginia’s economy suffered in
the last few years. The
economic downturn affected the entire nation.
The explosion of state and local borrowing in
recent years is not so well known.
economic conditions change, credit rating analysts
assess how a state reacts and how quickly it does
so. In June,
all three rating agencies confirmed Utah’s AAA
rating, citing careful economic monitoring, quick
and aggressive action when shortfalls were
identified, and moderate levels of debt.
While keeping its commitment to education,
Utah made difficult choices, reducing spending,
postponing capital construction, and employing sound
fiscal management to reduce its budget and debt
Virginia’s budget and debt burdens have grown.
The commonwealth’s direct debt burden is
only part of the problem.
Overlapping debt, including authority debt
and local government obligations, grew even faster.
Why is Virginia’s bond rating in jeopardy?
Because rating agencies think the Virginia
taxpayer is in danger of becoming overburdened.
Higher taxes hardly solve the problem.
Warner is eager to tell Virginia’s taxpayers about
the “rating crisis”.
What he apparently forgets is that the
commonwealth’s general obligation rating was not
placed on the watch list for a possible downgrade
solely because of the GO debt burden.
Many ties link Virginia’s GO rating to
obligations citizens cannot control.
their recent announcement, rating agency analysts
made it clear that the commonwealth’s AAA GO
rating was placed on the watch list "in
conjunction with" the Virginia Localities
Intercept Program. The
commonwealth uses the Intercept Program to guarantee
payment on defaulted local government GO bonds.
Defaulted GO bonds issued by the cities of
Bristol, Franklin, and Pulaski and the counties of
Lunenburg, Prince George, and Warren totaling about
$29 million currently weight down Virginia’s
credit rating, and budget, as a result.
Essentially, these local governments injected
fixed costs into the state budget without
the Intercept Program is only the tip of the iceberg
because GO bonds represent only a small part of the
total debt burden. As
a direct result of the outrageous debt issuance
practices described in the Virginia Institute for
Public Policy’s recent
report, authorities and local governments, with
Richmond’s blessing, run wild, burying taxpayers
under mountains of unnecessary debt.
The commonwealth’s disenfranchised voters
have almost no control over most debt issued in
look at just a few examples.
In December 2003, Pocahontas Parkway bonds
dropped into junk territory, to BB from BBB-minus,
and remain on the watch lists of all three rating
action affects $355 million of the Authority’s
outstanding bonds. The
commonwealth is one “partner” in the Authority.
Virginia Resources Authority bonds totaling $61.9
million were downgraded last year.
According to rating agency analysts, the
Authority looks more like “an over-collateralized
airport deal than a revolving fund, which is what
this was set up to be."
This bait-and-switch puts the
commonwealth’s taxpayer on the hook because
VRA’s bonds are guaranteed by a “moral
This wink-and-a-nod method of avoiding
citizen oversight, invented in New York State and
now illegal there, somehow lives on in Virginia.
The growing number of local authority bond
defaults in the commonwealth and skyrocketing
burdens imposed by failed industrial revenue bond
issues, compounds the problem.
a final insult, Virginia’s citizens must endure,
and pay for, debt hiding under the convenient
fiction that lease-backed bonds are not really debt.
The delusion originated in Virginia’s
in Richmond, apparently including Gov. Warner, like
the fantasy enough to look the other way when
citizens, hoping to re-establish some hint of sanity
in government debt issuance, protest and sue to
preserve a vestige of public control over
Warner claims, “It would be wrong to deny our
responsibility to our children and grandchildren.”
I agree, but the problem is not going to be
solved by giving the debt junkies another fix.
If the governor is serious, he can safeguard
the commonwealth’s credit rating by stemming the
tide of debt that threatens to drown future
generations and forget about raising taxes that only
add to the existing burden.
February 16, 2004