Friday, November 27, 2020
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Governor McDonnell’s Legacy: A Lower Bond Rating

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Governor McDonnell photo BobMcDonnell_1.jpgTry as he might, Governor McDonnell has been unable to stem a rising tide of debt despite claiming budget surpluses each year he has been in office. Gimmicks like underfunding the Virginia Retirement System and the attempted liquidation of the ABC stores were smokescreens. This will be the McDonnell legacy.

The sorry fact is that Governor McDonnell has added billions to the debt of the Commonwealth. Holding him responsible only for the two full fiscal years that he owns completely (2011 and 2012), debt has risen $ 4.29 billion from $ 31.8 to $36.1 billion. That is a whopping 13.5% increase in only 2 years. And his budgetary genius will continue to daunt the Commonwealth for the next two fiscal years. That could mean that McDonnell would leave office with the legacy of a full one-quarter of all Virginia debt obligated during his single term. Who is a burden on our children's future?

The next Governor faces a situation that was a red herring in the last gubernatorial race: increased costs of elevated debt rising from a reduced bond-rating. While there is no reliable metric for determining the risk threshold for bond ratings, the ratio the state has used to mitigate that risk is sounding a warning that that threshold is about 2 years out. As Republicans like to say, the market will be the final arbiter. And as Democrats in Virginia have learned, the consequences of Republican policy always occur on the Democrats' watch (See Mark Warner).

What that means is that despite a victory of sorts for the transportation funding, other areas of government spending will remain tight until the economy improves dramatically unless we continue to borrow or we raise taxes. Increased taxes are probably not going to happen before any calamity. Of course, borrowing will lead directly to breaching the bond rating threshold, increasing the cost of debt and threatening the funding for already underfunded programs; a vicious cycle.

With the threshold two years away and limited influence over the budgets for the intervening fiscal years, Terry McAuliffe wants to deal with this mess? And what exactly would Cuccinelli do? The prospects are onerous.

Virginia’s AAA Bond Rating In Jeopardy Thanks to Can’tor and Company?

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The negative consequences of the wild budgetary irresponsibility of Teapublicans like Eric Can'tor continue to pile up. The latest? Needless to say, this is not good:
Moody's Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody's July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody's announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.

Should the U.S. government's rating be downgraded to Aa1 or lower, these five states' ratings would likely be downgraded as well. Moody's will review the ratings of the five states on a case-by-case basis and announce any rating actions within seven to ten days following a sovereign action.

Specifically, with regard to Virginia, Moody's cites several factors, including two "above averages" that really jump out at you: 1) "Federal procurement contracts as a percentage of state gross domestic product;" and 2) "Federal employees as a percentage of the state's total employment." The reason these two particularly jump out is that they totally belie the b.s. we hear so frequently from Virginia Republican'ts like Bob McDonnell, who attribute all good things in Virginia to the Holy Private Sector, and all bad things to the Evil Government, while of course totally ignoring the gigantic elephant in the room  -- that Virginia is heavily, extensively, whatever other adverb you want to use, reliant on the Federal government for its prosperity. Take away the Pentagon, federal workers, federal contractors, the military-industrial complex, etc., and what would Virginia be? West Virginia, maybe? Of course, you'll NEVER hear that from right-wing ideologues like Bob McDonnell and Eric Can'tor, but facts are stubborn things...

One last point for all those Virginia Republicans seemingly hell-bent on preventing the United States of America from fulfilling its obligations to creditors: while you're destroying our country, just keep in mind that you'll also be destroying our state as well. Of course, if these guys don't care about the country, I suppose they wouldn't care that much about Virginia either, but they're not the brightest bulbs, so you never know.

P.S. Tim Kaine's statement is on the "flip." In short, Kaine urges "all those who seek to serve Virginia in the United States Senate to join me in demanding that Washington set aside political gamesmanship and vote to protect the U.S.'s credit rating by raising the debt ceiling and fulfilling our obligations without further delay." I couldn't agree more.