As I noted several weeks ago, if the federal government’s AAA rating is cut owing to skittishness over the debt ceiling, Virginia’s AAA rating could suffer as well. And now, Moody’s has made the possibility of such a downgrade quite clear:
— Moody’s Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody’s July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody’s announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.
Other states Moody’s rates as AAA aren’t on the list. So why Virginia, but not, say Alaska or North Carolina? I’ll let the bullet points do the talking:
• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody’s Economy.com measure of employment volatility due to U.S. fluctuations: Above average
• Federal employees as a percentage of the state’s total employment: Above average
• Capital markets risk: Low due to a small amount of puttable variable rate debt outstanding
• Federal procurement contracts as a percentage of state gross domestic product: Above average
• Medicaid as a percentage of total expenditures: Below average
• Available fund balance as a percentage of operating revenue: Below average
While the ratings agency makes it clear that any downgrade of state debt like Virginia’s would be on a case-by-case basis, the points above still ought to be quite sobering for those who believe that Virginia — business friendly, well-managed commonwealth that it may be — controls its own fate. It does not.
Ultimately, it’s the fate of our impoverished Uncle on the Potomac that decides. Remember that as the resident political class beats its breast over its already spent budget surplus.
— Norm Leahy
(Cross posted at Score Radio Network)
