In a post yesterday morning, I questioned whether the Daily Press was engaging in a little revisionist history in the way it portrayed the Moody’s credit watch on Virginia’s AAA bond rating. Perhaps, I suggested, the Moody’s warning to Gov. Warner and senior legislators was more ambiguous than subsequently portrayed in the 2004 tax-hike debate. Now comes Gordon C. Morse, a contributing editor at the Daily Press, with details that I find persuasive.
Morse e-mailed me as follows:
Jim, oddly enough, I actually do know what Moody’s said, because I asked. The Moody’s representative came down for the House Appropriations Committee retreat at Alumni Hall at William & Mary on Tuesday, Nov. 18, 2003. After her presentation, I asked her if she had some time, and we sat in one the conference rooms and discussed the process used by Moody’s at some length, but off the record. There was no ambiguity. None. Virginia was on Moody’s 90-day watch, which was subsequently extended because of the protracted debate of the 2004 legislative session. Moody’s reasons for this were not new. Barents Group, in a privately-financed analysis, had already reported in September, 1999 that “on a current services level, expenditures exceed revenues by about $0.7 billion in FY 2000 and by more than $1 billion by FY2008.” Barents also calculated for anticipated additional or “supplemental” spending for Medicaid and higher education and said that would run the state fiscal gap “to more than $3.5 billion by FY 2008.”
In early 2004, there were repeated meetings with Moody’s, with Warner himself intervening more than once to keep Moody’s from downgrading the state’s credit rating. None of this was reported, but I kept up with it by simply making inquiries. North Carolina went through the same thing and did in fact have its rating reduced to double-A, as I remember.
Bottom line: The Moody’s downgrade threat was real. Given thatGov. Warner was intent upon hiking state spending to bring K-12 schools up to the re-benchmarked Standards of Quality, it’s much easier to understand his decision to raise taxes. I’m not saying that I agree with the decision but it would be unfair to accuse Warner, as some did at the time, of exaggerrating the Moody’s threat.
One of these days, we’ll have to dig into that SOQ re-benchmarking process, but that’s another question for another day.