Falling reserves could lead to bond rating dip

CONCORD – Gov. Craig Benson said he’s “very concerned’’ at the possibility the state’s bond rating could be lowered when Wall Street agencies make a decision about an $80 million, long-term note in the coming weeks.

During an interview, Benson confirmed meeting in his office with leaders of the three major rating agencies Thursday and Friday to urge that they maintain New Hampshire’s position.

“They are very concerned. I am concerned about a downgrade. We’ve got about one day’s worth of spending in our savings The analysts are most worried about the state’s declining reserves that have fallen from $188 million in 1999 to $19.5 million by June 30, Benson said.

The reserves were spent to help balance the last several budgets.

This pared down by about two-thirds the so-called Rainy Day Fund that hit an all-time high of $55 million for the year ending June 30, 2002, and erased the $45.8 million Health Care Transition Fund with last year’s budget.

“They really don’t like it at all. It isn’t good,’’ Benson said.

A ratings dip could cost the state in higher costs to repay the bond.

A less extreme response might be for one of the agencies to place the state on a “credit watch’’ for closer review in the future.

“They’ve really had a depletion of reserves and that certainly bears some looking at,’’ Nicole Johnson, an analyst with Moody’s Investors Service, told The Bond Buyer, a financial newspaper, last week.

Supporters say factors weighing in the state’s favor and against any change are the relative health of New Hampshire’s economy compared to the nation and the education and income level of its work force.

Investor interest in New Hampshire bond issues can be strong because this state goes to the lending market less often than most states, analysts said.

The two-year budget Benson signed in September after vetoing the first would raise the Rainy Day Fund balance to an estimated $32 million by June 30, 2005.

This higher figure presumes he will achieve $50 million in savings as well as new revenue, which many legislators were skeptical about, including $7.5 million from a new liquor store in Nashua.

This bond is the first issuance of a large amount of new general obligation debt in about two years.

Last month, Treasurer Michael Ablowich learned about the concern that rating agency officials had about the reserves in finalizing the sale of $50 million in short-term debt to finance public works projects.

This type of debt was backed by a letter of credit from Heleba Bank of Germany and therefore not at risk of being changed, Ablowich told Benson.

Ablowich also has briefed House and Senate leaders about the rating agency concerns.

Senate Majority Leader Bob Clegg, R-Hudson, said this should be watched because many states have had ratings dip during the economic recession.

Five states, including Connecticut and New York, have received recent downgrades.

“We’re not really worried for this round, but it does always depend on how nervous the market gets,’’ Clegg said.

New Hampshire is currently rated AA plus by Standard and Poor’s and Aa2 by Moody’s Investors Service, both with a stable outlook.

Fitch Ratings gives New Hampshire a AA plus.

Maine has the same ratings as New Hampshire.

Vermont is the same as this state in two of three ratings but Moody’s gives Vermont a better Aa1 rating.

Massachusetts has a lower rating than New Hampshire from two of the three agencies.

At least one rating agency gives a “negative outlook’’ to Maine, Connecticut, Massachusetts and New York.

Benson told rating officials he’s pressing for support of his Taxpayer Bill of Rights that would place an inflation-based cap on annual spending increases in the state budget.

Revenues that exceed those spending limits would be placed in the state’s reserve, Benson said.

“They seem to like that approach a lot,’’ he said.

The Legislature and voters next year need to approve this proposed change to the state Constitution by different super majorities, both by 60 percent or more.