Trouble Ahead? Virginia’s Bond Rating
On Tuesday, Governor Bob McDonnell announced that Virginia has a $311 million revenue surplus. Yet, in spite of this surplus, Gov. McDonnell stated that Virginia’s credit rating could be lowered. Due to the ongoing financial trouble in Washington, Virginia, along with four other states, is in danger of having its AAA bond rating downgraded by Moody’s Investors Service.
If the national borrowing limit cannot be raised above $14.3 trillion, Moody’s Investors Service potentially could lower the national government’s credit rating. If this occurs, then Moody’s Investors Service will decide the fate of Virginia’s credit rating within 10 days.
Calling the federal financial situation a “national embarrassment”, Gov. McDonnell, as well as other elected officials around the state, is rightly justified in his outrage at this prospect. Since 1938, Virginia has maintained the highest bond rate possible. The effect of lowering the credit rating is that Virginia will face higher borrowing costs. Virginia officials are also upset because they feel that the state is being targeted due to the high number of federal employees that live there.
The danger in a lower credit rating is increased by the fact that the surplus has already been allocated to different state programs. The breakdown is as follows: a $4.3 million tornado relief fund, a rainy day fund of $146.6 million, $23 million to transportation, $32.2 million to the Chesapeake Bay clean-up program, $7.4 million to the Sheriff’s offices, a $7.5 million Base Realignment and Closure fund, and $8.9 to the Interest on Unemployment Compensation Trust Fund. Additionally, an unknown amount will go towards a Virginia retirement program.
With the federal government’s August 2 deadline quickly approaching, hopefully Virginia will come out on top.
Disclaimer: The opinions expressed in this post are those of the author, and do not necessarily reflect those of members of the NDP Steering Committee.