Wed April 17, 2013
Agenda Texas: Bond Rating Battle
When we were talking about the politics of transportation funding yesterday we heard from Tea Party activist Jo Ann Fleming. She and her fellow tea partiers are not fans of more state spending. Especially not if the money to build roads or water infrastructure comes from the state Economic Stabilization Fund, known as the rainy day fund.
“If they take $6 billion out of the rainy day fund, the Tea Parties of Texas believe that our AAA credit rating will be in danger. We think our state will be weaker," Fleming said.
That idea that the state needs to leave several billion dollars in the rainy day fund to protect its bond rating is often heard around the Capitol as a reason to leave the fund -- projected to be almost $12 billion by 2015 -- alone.
Governor Rick Perry tipped his hat to the idea in his State of the State speech in January.
“The rainy day fund was created to ensure we had a sufficient amount in reserve in case of a disaster. And to maintain Texas' strong credit rating," Perry told lawmakers at the start of the legislative session.
But Governor Perry also thinks leaving the fund untouched isn’t good either.
“Now, we need to maintain a strong rainy day fund. While we cannot and we will not raid that fund to meet ongoing expenses, we also shouldn’t accumulate billions more than is necessary," Perry said.
So what’s the truth? Does spending down the rainy day fund hurt the state’s standing in financial markets?
Rice University Political Science professor Bob Stein gave me a rundown of what bond rating agencies look for when they give out those ratings.
"Well clearly the bond rating companies look at simply the capacity of the state to what we call 'service the debt,'" Stein said.
But the bond rating agencies also look at how the state is spending it's money to determine credit worthiness.
"The economic theory has always been that you would invest in things like capital expenditures because that attracts productive capital and labor to your community that will buy homes and buy commodities and they will generate taxes that you can then use to finance those bonds," Stein said.
So while some people argue the state can't spend any of the rainy day fund or it will hurt the state's bond rating, not spending any of the state's rainy day fund could hurt the state's bond rating.
The most anyone is proposing to spend out of the rainy day fund this session is $6 billion for transportation and water projects. That would leave a little less than $6 billion for lawmakers to use, or not, in the 2015 legislative session.