S & P Drops Michigan Credit Rating
"lack of timely (budget) progress" Leads to Downgrade
For the third time this year, Wall Street has downgraded Michigan's credit rating. Standard and Poor's today lowered Michigan's General Obligation Credit Rating to AA- from AA. As with previous downgrades from Fitch and Moody's, S&P cites delays in securing budget agreements and the legislature's elimination of the Single Business Tax without replacement revenue as key factors.
"We have heard warnings for months now and today's statement should ring loud and clear: We must get our fiscal house in order...now," said State Treasurer Robert J. Kleine. "Governor Granholm has offered a comprehensive budget and tax restructuring proposal, and made repeated attempts to remedy this crisis."
In making today's announcement, S&P said ongoing revenue weakness, use of onetime solutions, and "the nature of the cuts that may be required at the end of 2007 because of failed negotiations on previous gap closing measures all suggest that the state could struggle with fiscal imbalances even beyond 2008." And that "...2007 actions that only defer needed budget adjustments rather than address them will make true fiscal balance in 2008 more difficult. Further downgrades are possible without economic stabilization and real action to restore fiscal balance."
"Michigan cannot simply cut its way out of the current budget crisis," Treasurer Kleine said. "While we must continue to follow Governor Granholm's Executive Directives and limit state spending to only the most necessary items, to think we can resolve this crisis without additional revenue is simply irresponsible and could hurt Michigan citizens in the long run through more costly health care, higher tuition rates, and public safety."
In fact, in a special S&P report released in March 2007 (Prompt Action Is Key to Improving Michigan's Credit Outlook), analyst Jim Wiemken wrote, "Michigan can not simply grow their way out of this fiscal crisis. Cutting taxes or providing economic incentives for businesses is not going to create revenue to address the current shortfall." The replacement of revenue lost due to the elimination of the SBT is also seen as a critical factor.
Michigan is now rated AA- by Fitch and Aa3 by Moody's.