- The Washington Times - Wednesday, September 10, 2003

Virginia’s efforts to eliminate the car tax isn’t sitting well with bankers on Wall Street.

Moody’s Investors Service has placed Virginia on a watch list, a move that could downgrade the state’s prized AAA bond rating. A downgrade means that Moody’s could increase the state government’s cost of bonds issued to finance major capital projects.

“The Watchlist action is prompted by fiscal pressures brought on by a weak economy and a significant revenue shortfall experienced since the recession began, especially affecting the technology and [telecommunications] industries,” said the New York-based bond-rating agency in a Sept. 4 release.

“This shortfall has further been exacerbated by the initial phaseout of a tax on automobiles that was introduced prior to the recession,” the company said.

Moody’s, with Standard & Poor’s and FitchRatings, are the three major independent Wall Street agencies that regularly rate and examine the creditworthiness of Virginia’s bonds.

Virginia currently maintains its AAA rating with Standard & Poor’s and FitchRatings. AAA is the highest rating states can achieve.

Moody’s said the shortfall was worsened by the phaseout of the car tax — the signature campaign issue of Gov. James S. Gilmore III that propelled him to the governor’s mansion in 1997.

The General Assembly in 1998 approved legislation that would roll back the car tax on a gradual basis and reimburse localities for their lost revenue. Those reimbursements cost $857 million in the fiscal year that ended June 30, and the current state budget appropriates $921 million for them.

Because of the state’s financial condition, the car-tax repeal has been stalled at 70 percent since 2001.

Moody’s also cited the drain on the state’s “rainy day” reserve fund to fill budget gaps caused by a $6 billion dip in state revenues since December 2001.

Since taking office in January 2002, Gov. Mark Warner, a Democrat, has cut more than $6 billion from the budget. In stump speeches across the state, he has reiterated the importance of maintaining the AAA bond rating as proof that the budget crisis, while difficult, has been weathered with no damage to the state’s credibility with investors.

Mr. Warner’s office directed calls for comment to Secretary of Finance John Bennett.

Mr. Bennett said the warning did not constitute a “downgrade.” Instead, he said the warning indicated that Moody’s was closely examining Virginia.

“Moody’s action recognizes that even though we have addressed a $6 billion budget shortfall, Virginia still faces difficult choices as we prepare for the next biennium,” Mr. Bennett said in a written statement.

Mr. Bennett did not address the car tax in his statement.

He added, however, that Moody’s actions did not come as a surprise, but that he was confident the state would retain its valued rating.

“Being a AAA-rated state carries with it a special type of responsibility,” Mr. Bennett said in the statement.

“We are confident that Virginia has the ability to take the actions needed to maintain the AAA rating from Moody’s, and we certainly intend to do everything we can to do so.”

This article is based in part on wire service reports.

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

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