Moody’s Investor Service announced last week that the state would keep its current bond rating for general obligation bonds but with a “negative” outlook for the future. A rating downgrade could have led to higher borrowing rates for infrastructure projects.
A spokesman for Gov. Susana Martinez, the state’s two-term Republican governor, suggested Monday that the stable bond rating validated the governor’s anti-tax increase stance, which had put her at odds with top-ranking Democratic lawmakers.
“Those who said we needed to take more money from New Mexicans – instead of the state living within its means – will have to explain to their constituents why politics was more important than hard-working families,” Martinez spokesman Joseph Cueto said Monday.
However, leading lawmakers said Martinez’s tax stance had complicated budget-balancing efforts during a prolonged state revenue downturn and prompted a three-day special session in May.
“A lot of what we accomplished could have been done in the regular session,” said Rep. Patricia Lundstrom, D-Gallup, chairwoman of the Legislative Finance Committee.
She also said the state could ill afford to have its credit rating downgraded twice in less than a year, adding, “We want to work to keep it there.”
Moody’s had downgraded New Mexico’s top rating for general obligation bonds in October – it’s now AA1 instead of AAA – and some lawmakers had expressed concern about the possibility of a second downgrade.
In announcing New Mexico’s bond rating would not change, the credit rating agency cited several special session actions aimed at shoring up the state’s budget – including setting aside more money in cash reserves and creating a rainy-day fund to help keep state government operations running in future cash-lean years – that were signed into law by Martinez.
But while Moody’s noted that New Mexico has a history of taking timely action to maintain a balanced budget, it expressed concern about structural problems with the state’s economy.
“Balanced against these strengths are an economy that has lagged the nation’s, below-average wealth levels and financial reporting practices which, while improving, are weaker than typical for a U.S. state,” the Moody’s report said.
New Mexico has had one of the nation’s highest unemployment rates in recent months – the jobless rate was at 6.6 percent in May – and more than 40 percent of the state’s population is enrolled in Medicaid.
The state’s revenue levels have plummeted in the past two years, largely because of decreasing oil and natural gas prices, and state cash reserves have dwindled from $613 million at the start of the 2016 budget year to an estimated $24 million for the budget year that started Saturday – or less than 1 percent of state spending.
And that’s after the Legislature approved a complex bond transaction and other one-time fixes aimed at freeing up more dollars for the budget during the May special session.
Despite the budget-balancing headaches, Sen. Steven Neville, R-Aztec, said he didn’t expect the state’s bond rating to be downgraded again.
“The reality is, we have $25 billion in the bank and we’re not going to go bankrupt,” he said, referring to money in state permanent funds that make annual distributions to help fund state public schools and other programs.
Other energy-reliant states have also struggled to fund government operations after big drops in oil and natural gas prices, and Illinois lawmakers have been trying to avert becoming the first state ever with a junk bond rating.
While Moody’s assigned a negative outlook to New Mexico’s general obligation bonds, the credit rating agency changed its outlook on state severance tax bonds – backed by future revenue collections on extractive industries – from negative to stable.