Wall Street Continues to Sound Alarm
Over Lack of Budget, Tax Restructuring Progress

For the second time in less than a week, a Wall Street rating agency has taken action against Michigan's credit rating. Moody's Investors Service today announced a downgrade of the state's General Obligation Credit Rating, from Aa2 with a Negative Outlook, to Aa3. Last week, Fitch Rating Service imposed a Negative Outlook on Michigan's Credit Rating. Today's announcement marks the sixth action against Michigan's Credit Rating in the last thirteen months.

"Wall Street could not be any clearer: Michigan has to resolve its budget crisis and failure to do so in a responsible way is going to further erode our standing with credit rating agencies," said State Treasurer Robert J. Kleine. "For months, Governor Granholm and members of the administration have been calling for action and offering proposals, most of which have been rejected by Senate Republicans."

In making today's announcement Moody's analysts said the downgrade "reflects the state's depletion of financial reserves, reduced liquidity levels,(a) deteriorating financial and economic outlook, as well as a reliance on non-recurring budgetary measures to offset revenue shortfalls."

While today's report credits Michigan for conservative financial management and restrained spending growth, it does note credit challenges, including a "Reduction in sources of available liquidity for essential programs such as K-12 (education)" and the elimination of the Single Business Tax. Analysts say Michigan's rating could face further downgrades as a result of continued cash flow problems, a failure to replace SBT revenues, or an inability to move the state closer to structural budget balance.

Michigan is now rated AA- with a Negative Outlook by Fitch and AA with a Negative Outlook by Standard & Poor's. In a special S&P report released last month (Prompt Action Is Key To Improving Michigan's Credit Outlook), analyst Jim Wiemken wrote, "Michigan can not simply grow their way out of this fiscal crisis. Cutting taxes or providing economic incentives for businesses is not going to create revenue to address the current shortfall." Wiemken went on to say, Michigan's credit outlook could be revised to stable "if the state is successful at passing a tax reform and budget package that addresses the current imbalance in a timely manner."