Pro-saving
California voters passed Prop. 2, which will revamp the state’s rainy day fund, require paying down debt and establishes a deposit rule for the savings fund. In a post-election report released Nov. 5, Moody’s called the passage a positive for the state. Standard & Poor’s went further this week – it actually upgraded California’s credit rating one notch to A+. But Prop. 2 is a negative for school districts' credit. The measure contains provisions that will limit districts’ reserve accounts and “will limit school districts’ overall financial flexibility and stability,” Moody’s said.Meanwhile, Maryland and Wisconsin voters passed measures that will bar legislators from raiding transportation funds, a positive credit development for both states. Maryland has $1.6 billion of outstanding Consolidated Transportation Bonds and Wisconsin has $1.9 billion of outstanding Transportation Revenue Bonds.
Anti-Taxes
Georgia voted to cap its income tax at 6 percent. Individual income tax is Georgia’s largest revenue source accounting for 47 percent ($9.5 billion) of the state’s fiscal 2015 general fund budget. Moody’s is neutral on the move but did point out that placing a constitutional cap on its largest source of revenue gives Georgia one less tool to offset revenue declines. Additionally, South Carolina and Kansas both saw significant revenue declines the year after they cut their income taxes. However, Moody’s said Georgia has a good history of quickly and soundly addressing revenue declines.Meanwhile, Wichita, Kan., voters rejected a 1 percent sales tax aimed at raising $400 million to fund four distinct priorities: water supply, job creation, transit improvements and street maintenance. Moody’s said the “rejection is credit negative for the city because the measure offered a new revenue source to address priorities the city will now need to fund by increasing property taxes and water rates.”
Kankakee County, Ill., residents also voted against a 1 percent sales tax increase that officials projected would generate $7.6 million annually for the cash-strapped county. The outcome leaves the county with few options to close a projected $3 million budget gap in fiscal year 2015. “Failure to enact sufficient expenditure reductions would further weaken the county’s already stressed financial position and would likely require increased amounts of cash flow borrowing, a credit negative,” Moody’s said.
Massachusetts also got a strike against it as residents voted to repeal a requirement that the commonwealth’s gas tax be adjusted for inflation each year. That hurts the credit of the state’s bonds that are funded from the tax “because the gas tax will be frozen at 24 cents per gallon, limiting the growth of pledged revenues,” Moody’s said.