News HeadlinesMinnesota lost its top credit rating on Thursday as Fitch Ratings downgraded the state's general obligation bonds one notch to AA-plus, citing the budget impasse...
The credit agency faulted Minnesota's use of so-called "one-shots", or nonrecurring revenues, to close deficits during the recession, a pattern it said likely will be repeated in the new budget.
Several quick thoughts:
1. There are adverse consequences when political leaders fail to take responsible decisions.
2. The use of gimmicks to balance the budget during the recession is something that could have adverse implications for Tim Pawlenty's Presidential campaign (damages his fiscal credibility and undermines the credibility of his call for a balanced budget amendment).
3. The use of budget gimmicks highlights the limitations of balanced budget amendments (Minnesota has a balanced budget requirement). Numerous states with such amendments have racked up growing debt and accumulated substantial unfunded liabilities.
4. The hindsight reaction of the ratings agency to the past use of budget gimmicks is a fresh argument that ratings agencies should become less reactive and more proactive. They should develop ratings based on the present and outlook 12-24 months down the road with the idea that the rating would be sustainable.