Moody’s Downgrades MN Outlook to Negative

Moody's downgraded its outlook for Minnesota's debt, although it affirmed its actual rating for the state, which remains one step below the agency's top rating.

Moody's Investors Service on Monday downgraded its outlook for Minnesota's debt to negative from stable, citing “political intractability,” according to a report by Bloomberg.

The negative outlook reportedly covers $6.1 billion of debt, and Moody's said that future budget gaps will likely result from the budget deal that ended the state government shutdown on July 20. That deal involved selling bonds tied to a 1998 tobacco settlement and a delay in education payments that shifts costs into a future budget period.

The Wall Street Journal reported that Minnesota has used nonrecurring measures to fix budget shortfalls since fiscal 2009 and continues to use them as a quick fix-“creating a structural budget imbalance in future years.”

Moody's said that “these negative factors put the state in a weaker position relative to other states within the same rating category,” according to Bloomberg.

Moody's affirmed, however, its Aa1 rating-the second-highest-for the state's general obligation debt.

Meanwhile, Jim Schowalter, the state's Management & Budget commissioner, told Bloomberg that “we need to fix the state's budget so that it does not rely on one-time solutions.”

The Moody's announcement comes shortly after Fitch Ratings lowered its rating on $5.7 billion in state general-obligation bonds to AA+ from the best AAA rating. That move came during the state shutdown.

 

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