Thursday, May 13, 2004

A key financial analyst said yesterday that Virginia should be able to keep its coveted AAA bond rating, signaling a likely end to the state’s fiscal woes.

Steven Kantor, the liaison between Virginia and New York bond-rating agencies, told The Washington Times the state’s new $60 billion budget will appeal to the rating agencies.

“I believe that the budget presents a very strong argument for the state to remain AAA rated by all agencies,” said Mr. Kantor, a financial analyst with New York-based Arimax Financial Advisors.

Those agencies, particularly Moody’s Investors Service, kept close watch on Virginia during the legislature’s historic 115-day tax-and-spending battle. Moody’s placed Virginia on its watch list last September.

The threat weighed on all lawmakers as they opted to raise taxes and freeze the state’s popular car-tax-relief program.

Gov. Mark Warner and Mr. Kantor will travel to New York next month to present the state’s tax-and-spending plan to the three top rating agencies, including Moody’s, and ask them to preserve the state’s bond rating.

The AAA rating is the highest a state can achieve and determines the interest rate paid on state-issued bonds.

Unlike Moody’s, the other firms — Standard and Poor’s and FitchRatings — had not put Virginia on a watch list.

Mr. Warner, a Democrat, said the two-year, balanced budget and $1.38 billion tax-increase revenue plan will assure the rating agencies that Virginia’s finances are stable.

“I am confident this budget and tax-reform plan will preserve our AAA bond rating,” Mr. Warner said May 7 when the General Assembly approved the budget.

State Treasurer Jody Wagner said the state is planning to issue between $125 million and $200 million in general obligation bonds for construction projectsat colleges, museums and parks and recreation facilities. The bonds are part of the $1 billion referendum passed by Virginia voters in November 2002.

The expectation is that the rating assigned to those bonds will indicate whether the state has kept or lost the AAA status.

The state sells bonds to investors — individuals, corporations and bond funds — to finance large capital projects. The bonds are considered attractive to buyers because of their AAA rating. The higher the interest rate on the bonds, the less likely it is that the state will invest in capital projects, making the state less attractive for economic development and new residents. It’s also possible the increased interest-rate costs would be passed on to taxpayers.

Moody Vice President John Cline would not comment on Virginia’s rating, but said yesterday the investment firm is “monitoring the situation.”

Mr. Kantor is Virginia’s key link to the mood on Wall Street and serves as an adviser to the state Treasury board, which approves the sale of bonds.

In February, Mr. Kantor advised the House Appropriations and Finance committees that a tax increase and budget cuts would probably help the state keep its rating.

Mr. Kantor also had said that projected economic growth would not be enough to fix the budget. He said the state should shore up its rainy day fund and avoid one-time budget fixes.

Moody’s issued its credit-watch warning Sept. 4. One of its main concerns was the depletion of the state’s rainy day fund, which totaled $940 million in 2001 but was tapped to balance the budget during the recession in the past few years.

The new budget deposits $87 million into the fund in 2006, bringing its total to $430 million by the end of that year.

Mr. Kantor also criticized the state’s commitment to long-term expenses such as the car-tax reimbursement, a growing and nearly $1 billion annual payment in the budget to localities to help drivers have lower car-tax bills.

Lawmakers capped the payment at $950 million annually in an effort to reach a final budget compromise. Many said the cap will also appeal to Moody’s.

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