Rating Agencies Have Eye on Mass. Budget Stalemate
12/2/19 1:16 PM
STATE HOUSE, BOSTON, DEC. 2, 2019.....There are no real signs of the Legislature breaking through its budgeting inertia on the horizon, but credit rating agencies that monitor the state aren't yet concerned about lawmakers' inability to close the books on the fiscal year that ended June 30.
If the branches cannot come to some agreement by Dec. 11 to break their stalemate over the supplemental budget to spend down the fiscal 2019 surplus and officially put a wrap on the last fiscal year, Comptroller Andrew Maylor plans to take it upon himself to close the books. That would leave several state accounts with deficits, upend pending spending plans, and would send the surplus money to the state's rainy day fund.
Returning to the State House on Monday after a week that saw legislative leaders question the other branch's approach and comments, but not say what's holding up their negotiations, it became clear that the branches didn't soften their positions and no agreement would be forthcoming until later this week at the earliest.
"At this point, there is no movement. They're still working. And we're hoping that they continue to discuss the supplemental budget," House Second Assistant Majority Leader Rep. Paul Donato told the News Service about the six-person conference committee after the House promptly adjourned its informal session Monday morning. "We're here to do it as soon as they give us the word."
Asked if there was concern that the conference process might stretch toward the holidays, Donato said, "I don't know, but I know that I read in the State House News that December 11th the comptroller has to do something, and I think it's the speaker's hope is that we get it done before the 11th. That's his hope."
The Senate kept its session open Monday, but senators did not offer any insights about why they planned to return later in the day.
The Senate received a communication from Minority Leader Bruce Tarr tapping Sen. Donald Humason to step into now-departed Sen. Viriato deMacedo's role on the conference committee privately negotiating the supplemental budget.
Tarr declined to comment after departing the chamber.
Gov. Charlie Baker and Democratic legislative leaders often tout their willingness to work together across party lines, but Baker in the current situation may need to intervene to help settle intra-party differences that have caused Democrats to badly miss the deadline to pass a final fiscal 2019 budget bill.
Baker and legislative leaders are scheduled to meet privately at 2 p.m. in the governor's office.
Given how late into the year the closeout bill has lingered, the Legislature and specifically the Ways and Means committees are poised to soon begin juggling work on three fiscal year budgets at the same time -- closing the outstanding fiscal 2019, management of the current fiscal 2020 budget and on Wednesday beginning the process of building the fiscal 2021 budget.
Though some political pressure might be mounting for House Speaker Robert DeLeo and Senate President Karen Spilka, the Legislature has yet to reach the point at which the credit rating agencies would become concerned.
Doug Offerman, a Fitch Ratings senior director who serves as the rating agency's analyst for Massachusetts, said he is keeping an eye on the lateness of the closeout bill but hasn't yet seen any cause for alarm.
"We watch, just in the same manner that we watch all of the fiscal developments that are going on in the state, like revenue collections, and the whole budget cycle, how the state determines upcoming priorities," he said. "It's definitely something that we look at."
And when Offerman looks at the current state of play at the State House, he said there is nothing that sets off alarms from the rating agency perspective.
"We have a very strong rating on the state and part of that speaks to its fiscal resources, its budget reserves, its commitment to sustainably managing its finances, and we haven't had a reason to be concerned about that in Massachusetts," he told the News Service on Monday morning.
Fitch has assigned Massachusetts an AA+ rating, its second-highest long-term rating level.
Moody's Investors Service, which this summer said Massachusetts' late budgets "reflect governance weakness" at the State House, also said that the current budget stalemate isn't much of a concern.
"Timely budgeting and financial reporting are basic governmental responsibilities, but short-term political disagreements occasionally cause delays. Massachusetts is often late with its budget, which we view as a governance weakness, but typically has been prompt in its financial reporting," Genevieve Nolan, the lead Massachusetts analyst at Moody's Investors Service, said. "Given the state's history of resolving these disputes, we expect the current debate to conclude in short order."
Ever since S&P Global Ratings downgraded its rating for Massachusetts bonds to AA from AA+ in June 2017 and admonished the state for "the commonwealth's failure to follow through on rebuilding its reserves" while the economy was growing, Massachusetts money managers have paid more attention to growing the rainy day fund.
"This is a pretty favorable moment for many states. Rainy day funds, most states have deposited a lot of money and Massachusetts is no stranger to that. And that is excellent in terms of having flexibility to deal with surprises that are inevitable," Offerman, the Fitch analyst, said.
Moody's took note of the state's progress at growing the stabilization fund -- on track to be pushed above $3 billion, though it might grow even higher if Maylor deposits the balance of last year's surplus into the fund rather than the Legislature appropriating the surplus -- after a periodic review of its rating for Massachusetts (Aa1) this summer.
"Strong year-over-year tax revenue growth, along with prudent planning, have afforded the commonwealth the opportunity to build reserves," the agency wrote in August.
[Sam Doran and Chris Lisinski contributed to this report.]
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