While Moody’s Investors Service has revised its outlook on Maine from stable to negative, Treasurer Bruce Poliquin reported to The Maine Wire that the agency has affirmed the state’s strong Aa2 credit rating.
A rating of Aa2 tells investors that Maine offers high-quality bonds with very low credit risk.
Despite the shift in outlook, Poliquin emphasized that Moody’s has maintained the state’s Aa2 rating. “It’s not a downgrade,” he told The Maine Wire, adding that there will be no adverse financial impact on the taxpayers.
Poliquin said the most important factor is that Maine’s credit rating has not changed. “We’ve retained our credit rating,” he said. “The outlook went from stable to negative because the credit rating agencies need to see us continue to improve controlling our Medicaid spending. In a nutshell, that’s what it’s all about.”
After watching the state’s expansion of Medicaid (MaineCare) for years, Moody’s is looking for sustained improvement, Poliquin said in an interview with The Maine Wire. “Now they are saying: Once you’ve started, we need to see you continue to go down that path, we need to see continued improvement in controlling Medicaid costs,” he said.
Poliquin said Moody’s recognizes that since Governor LePage’s new leadership team took the reins, Maine has “right-sized” spending on Medicaid programs, put aside revenue for the Budget Stabilization Fund (rainy day fund), eliminated $1.7 billion in pension debt and paid off some debt to the hospitals.
“Government has been in many ways unaffordable,” Poliquin told The Maine Wire. “But we have continually proven that we have reduced government spending, and we’ve reduced the budget. We are not taking on any more liabilities, and we paid off some of the hospital debt last year.”
Moody’s has also seen Maine’s progress in addressing long-term structural liabilities in pension funds. “Eliminating $1.7 billion in pension debt allows us spend $200 million less per year for the next 17 years until it is paid off,” Poliquin said. “We got very high marks for that.”
Despite the change in their outlook, Moody’s gives the LePage Administration credit for starting to deal with Medicaid costs, Poliquin said. “They mentioned several times that Maine’s Medicaid costs have been going on many years,” he told The Maine Wire. “They gave us credit because this is the first time that Maine is dealing with the structural deficit.”
Over the past several months, the Office of the State Treasurer has led a team of state government officials in discussions with the national rating agencies to update Maine’s credit rating.
During the late spring of each year, Maine state government typically borrows money by selling bonds to investors in order to fund capital projects such as road and bridge construction and repair. In preparation for the bond sale, the state seeks credit updates from the rating agencies.
On May 31, the Office of the State Treasurer is planning to sell $55 million of general obligation bonds that were approved by the Legislature and Maine voters during past years. The interest and principal payments to bondholders are secured by the full faith and credit of the state. There is approximately $490 million of outstanding Maine general obligation debt.
In affirming its Aa2 credit rating, Moody’s cited Maine’s credit strengths, including its manageable general obligation debt level; rapid 10-year pay back of such borrowing; gradually increasing tax revenues; strong internally managed Treasurer’s Cash Pool; and recent reform to its public pension plan for teachers and state employees that reduced future annual payments from the state’s General Fund.
Moody’s change to negative outlook reflects Maine’s recurring challenges for the Department of Health and Human Services spending, primarily for its Medicaid (MaineCare) program; modest Budget Stabilization Fund (rainy day fund) balance; negative General Fund unassigned balance; and slower than average economic recovery—all of which strains the state’s financial liquidity position.
“I’m pleased that Moody’s Investors Service has affirmed Maine’s solid Aa2 credit rating,” Poliquin said. “This rating will continue to give investors confidence in the quality and security of our general obligation bonds. Our office anticipates strong demand at the May 31 bond sale.”
Poliquin said he appreciates the helpful guidance from Moody’s as Maine continuously strives to improve its credit rating. “I note that Moody’s recognized the positive financial impact of state government eliminating $1.7 billion of our unfunded public pension liability last year,” he said. “This year, the rating agency acknowledges the long-term financial health of our ongoing initiative to right-size our Medicaid program.”
The LePage Administration is committed to creating a business-friendly environment to attract capital investment and private sector jobs, Poliquin said. “This goal of long-term prosperity for Maine citizens is based on restraining state government spending; reforming public entitlements while maintaining important safety nets based on national averages; addressing long-term financial liabilities; lowering energy costs and health insurance premiums; streamlining business regulations; and investing in public education and infrastructure,” he said.