Gov. Snyder of Michigan meeting with bond rating agencies to lower state’s borrowing costs
Gov. Rick Snyder and his Budget and Treasury officials are meeting with bond rating agencies in New York City today in an effort to drive down borrowing costs for the state.
Snyder spokeswoman Sara Wurfel told the Detroit News that Snyder wants “to demonstrate and show all the steps Michigan is taking to get its fiscal house in order.“
Michigan has an AA- rating from Fitch Ratings and Standard and Poor’s. It has an Aa2 rating from Moody’s. All three are considered “high grade” ratings, Treasury Department spokesman Terry Stanton said.
For example, AA- is just two notches below the highest rating of AAA, he said.
Stanton couldn’t estimate how much a one-notch improvement in Michigan’s credit rating would save the state.
“The higher the rating, the lower interest paid, so clearly it is better to have the highest rating possible,” he said.
The News reports that Snyder will be touting the cuts-heavy state budget that was finished far earlier than normal.
He will also likely play up Public Act 4 — the Emergency Manager law — which allows the state to take over local governments and schools. One of the criteria for state intervention is a credit rating of BBB or lower.
In March Bond Buyer magazine reported that investors appreciate this law.
“There’s no downside to loss of local control, particularly to the state of Michigan, which is very well-managed financially” in light of its major revenue losses, said Gordon Murray, vice president and senior credit analyst at Belle Haven Investments, which buys local government debt in Michigan. “Having state oversight we always feel is positive.”
“Depending on the timing of the state’s entrance, it gives it significant power to fix things and to ensure financial recovery,” Murray added. “However, the point at which the state steps in is a question, because a lot of times the situation may have deteriorated to such a state that bondholders are already feeling the pain.”