Today, for the first time since 1973, Moody’s Investors Service upgraded the state of Wisconsin’s General Obligation rating to Aa1, up from Aa2.Scotty included a link to the Moody's analysis in the press release, and I wanted to see where they came up with the reasoning for the upgrade. The wording is pretty dense, so I wanted to break it down in some bits and pieces.
“Since taking office in 2011, we focused on fiscal responsibility and our state’s finances have significantly improved as a result,” Governor Walker said. “The upgrade in rating reflects our fiscal stability driven by bold reforms and accountable stewardship of the taxpayer’s dollar. Moody’s decision to upgrade our rating, for the first time since 1973, shows that Wisconsin is working.”
The outlook for all the long-term [State of Wisconsin] ratings was moved to stable. The upgrade to Aa1 reflects the proven fiscal benefits of the state's approach to granting and funding pension obligations when many other states are experiencing stress from rising costs and heavy liabilities; an economy that delivers steady but moderate growth; conservatively managed budgets; and adequate liquidity. Despite Wisconsin's slightly elevated debt levels, its fixed costs for pensions, debt and retiree health benefits are below the median for Aa1 states and outweigh the credit challenge of the state's negative unassigned fund balances.Oh, are you talking about the Wisconsin Retirement System that has been funded at or near 100% for well over a decade? The WRS that Walker hired a consultant at state cost in 2011 and 2012 to try to "reform" and mess up, only to be told "You're an idiot if you try to change this." Now he's trying to take credit for an employee pension and benefit system that predates him and is run competently outside of his administration? Shameless BS.
And "conservatively managed budgets?" Is that what you call major cuts to schools, higher education and local governments, and allowing roads to deteriorate to bottom 5 level due to a lack of investment? Sure, it makes the numbers add up in the face of idiotic tax cuts, but it's also led to 6 straight years of job growth being ranked 30 or below, and those "elevated debt levels" are a big reason why we can't pass a budget, because DOT debt is eating up too many costs, and we don't have enough money coming in to either the General or Transportation Funds to pay for it.
Appropriation debt is notched off the state's GO rating to reflect risk of non-appropriation since the state is not obligated to appropriate debt service for the bonds. The Certificates of Participation, General Fund Annual Appropriation Bonds, and Taxable Pension Bonds are upgraded to Aa2, one notch lower than the state GO rating, to reflect their average legal structure and essential nature of the projects funded.Oh, you mean the Appropriation Obligation bonds that we will owe an addition $128 million on in the next budget, due to a debt swap in August 2016? That's a sizable factor in the state's $1 billion structural deficit in the General Fund for 2019-21 under Walker's submitted budget. And more costs on that debt swap follow in future years. Did Moody's not look into the future when it came to this evaluation?
Related to that, check out what Moody's says is Wisconsin's risks for a credit downgrade.
Departure from prudent fiscal management practices that have aligned spending with the state's moderate economic growthPrudent fiscal management? Like using $340 million a year of General Fund money to "buy off" the Forestry part of property taxes and possibly the personal property tax for businesses? Like giving away $200-$250 million a year in bags of cash so Foxconn can build a campus somewhere in Racine or Kenosha County?
Return to structural budget imbalance and reliance on non-recurring measures to address budget gaps
Accelerated deterioration of the state's financial position resulting in weakening of liquidity or larger GAAP-negative fund balances
Did Moody's notice the $1 billion structural deficit, and the fact that the Foxconn package would add to that number with no real increase in revenues to offset that? And how some of Walker's initiatives include delayed payments into the following fiscal year, which further drive up a GAAP deficit that would have risen last year without Walker skipping a debt payment, and is slated to exceed $2 billion by the end of this current budget (see page 57 of this PDF).
As I was reading Moody's justification for Wisconsin's upgrade from S&P, this part from "The Big Short" came to mind (language NSFW).
Related to that clip, let's note what happened only happened 7 months ago.
Moody’s Corp. agreed to pay almost $864 million to resolve a multiyear U.S. investigation into credit ratings on subprime mortgage securities, helping to clear the way for the firm to move beyond its crisis-era litigation.Moody's wouldn't be up to their old tricks now that the new Wall Street-dominated Trump Administration is likely to look the other way on malfeasance, would they? It certainly seems to be part of the mentality behind the stupid bubble we've seen in the stock market in 2017.
Moody’s reached the agreement with the U.S. Justice Department and 21 states, which accused the company of inflating ratings on mortgage securities that were at the center of the 2008 financial crisis, the Justice Department said Friday in a statement. That penalty is about a third of the $2.5 billion that Moody’s earned in the four years leading up to the crisis. Standard and Poor’s, after fighting the U.S. in court for two years, settled similar claims with the U.S. for $1.5 billion last year.
While Moody’s failed to abide by its own standards in rating some securities according to the government, it said the settlement doesn’t contain a finding it violated the law or any admission of liability.
So no, I'm not buying the happy talk from the Walker Administration on the state's credit rating. Our financial situation is still lousy and fragile in Wisconsin, and will get worse if gimmicks like Walker's budget and the Fox-con are allowed to become law.