Holden, Blunt tout obscure credit fact

Monday, March 14, 2005 | 12:00 a.m. CST; updated 2:24 p.m. CDT, Sunday, July 20, 2008

JEFFERSON CITY — Bob Holden and Matt Blunt might espouse different political philosophies. But the former Democratic governor and the current Republican one seem to share a penchant for citing an obscure financial fact to try to bolster their political aims.

Holden used to frequently trumpet Missouri’s “Aaa” credit rating while claiming it showed his sound, conservative management of the state’s money. Holden would typically couple that with his call to increase state tax revenues to shore up the budget.

Although he has been in office just two months, Blunt also is now citing the state’s Aaa credit rating — not as a reason to raise revenues, but as justification to cut Medicaid spending.

This past week, Blunt promoted an excerpt from an analysis by Moody’s Investor Service, bestower of the Aaa rating.

“The outlook for Missouri is stable,” the Moody’s report concludes, based on expectations that Missouri’s finances are in line with its budget forecast “and that proposed reductions in spending, such as those proposed by the governor, will be enacted.”

From the details of the report, the governor’s office also plucked this: “Moody’s expects that the state will, in some way, take action to rein in Medicaid funding requirements as part of a broader effort to return to structurally balanced operations.”

The implication from Blunt’s office was that his proposed Medicaid cuts, which consist of a reduction of about $625 million in state and federal spending that would eliminate about 89,000 recipients, are critical to retaining Missouri’s high standing in the financial world.

That begs a few questions: Is this really true? And so what?

As to the veracity, the Moody’s analyst who wrote the report said in an interview that Medicaid growth, which is outpacing revenue gains, does pose Missouri’s biggest financial challenge. But Ted Hampton ranked as the state’s second-biggest challenge the political opposition to tax increases coupled with constitutional provisions capping revenue growth and requiring statewide votes for tax increases.

Blunt made no mention of that in touting the report.

In essence, the report suggests that Blunt is both solving and contributing to the state’s financial challenges by proposing Medicaid cuts yet opposing tax increases.

“It’s not that we’re saying we want to see a lot of tax increases, but if a state ties its hands that way, there can be ramifications down the road if times get tough,” Hampton said. “Missouri has managed to maintain its Aaa because it’s been able to do more on the expenditure management side, even though things may have been difficult on the revenue side.”

So why does the good credit rating matter?

A good credit report can result in lower interest rates on state bonds, just as it can help a family get a lower interest rate on a home mortgage.

Missouri is one of just six states receiving Moody’s top Aaa rating for general obligation bonds; the others are Delaware, Georgia, Maryland, South Carolina and Virginia. Most states are two notches lower, at “Aa2” ratings, Hampton said.

Based on market conditions, the difference between an Aaa and an Aa2 credit rating for states is about 1 percentage point of interest, said Austin Tobin, president of Southbury, Conn.-based Delphis Hanover Corp., which tracks municipal bond interest rates. So a 1 percentage point difference on hundreds of millions of dollars of bonds can quickly result in multimillion-dollar savings for the state.

Like any household or business leader, governors have several hats to wear. They must market the state’s economic climate to businesses, market their policy proposals to legislators and market themselves to the voters.

A good credit rating could help market the state to businesses considering whether to invest in Missouri. But governors are mistaken if they think the Aaa credit rating helps sell themselves, or their proposals, to the voters, said George Connor, a political scientist at Southwest Missouri State University.

“It doesn’t resonate to the average voter,” Connor said. “In terms of the bond issue, I think nobody cares.”

The lesson for politicians trying to reach voters: Rather than talking about the Aaa, it’s better to talk about the ABCs of education or the 123s of taxes and spending.

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