Officials at the major credit rating agencies are planning to meet with New York State Governor-elect George Pataki to discuss the impact of his dramatic tax-cut proposal on the state's bond rating.
At the moment, Standard & Poor's Corp., rates the state's general obligation bonds A-minus, while Moody's Investors Service gives them an A. New York has one of the lowest bond ratings of any state, which adds to the interest rate tab whenever the state floats debt.
No meetings have been scheduled yet, but officials at Standard & Poor's and Moody's say they expect to meet with Pataki before the end of the year, or in early 1995. Officials from the Pataki transition team did not return a telephone call.
The state's fiscal 1995 budget, which began July 1, will probably remain in balance. Still, rating agency officials said they are concerned by several recent econontic developments in the state, coupled with the governor-elect's plan to substantially reduce income taxes.
New York recently reported a sharp decline in income tax revenues, causing its projected budget gap for fiscal 1996 to grow to about $4 billion. The Pataki plan to cut taxes will further stem the flow of revenue into state coffers, creating a situation where an already weak bond rating could suffer further, market analysts say.
Bond raters would not say if a rating change is imminent, or even expected, if Pataki has his way. Pataki must get approval from the state legislature before implementing his plan. Rating officials said they will wait until the proposal is put into effect before making a definitive statement.
But Pataki's recent comments that he is committed to carrying out the tax cuts despite the budget gap projections has officials at the ratings houses concerned that bondholders may ultimately suffer.
When they meet, raters said they will discuss with the governor-elect how his tax-cut plan will affect the state's already weak credit standing, as well as the plan's impact on the state's long-term or structural deficit.
"We want to discuss the reality of what they plan on doing," said Steve Nelli, director at Standard & Poor's Corp. "We want to see exactly what they plan on doing, especially given what has happened to the New York State economy during the last six months."
At Moody's, Catherine Fleischmann, a vice president in the state ratings group, said that the agency's conversations with Pataki will "concern the financial health" of the state, including the state's budget problems. Fleischmann said Moody's will discuss the tax-cut plan "in the context of the whole budget."
Bond analysts said the Pataki tax cut, if implemented without corresponding budget cuts, could make the state's structural deficit even worse. While the state faces a $4 billion gap in fiscal 1996, the gap could range higher in 1997 and beyond.
Pataki, who defeated incumbent Gov. Mario M. Cuomo in last week's gubernatorial election, recently said he was "shocked" at the size of the 1996 gap.
State officials said Pataki should not have been surprised. State budget director Rudy Runko said the Cuomo administration projected a $1.4 billion gap in fiscal 1996 when it submitted its executive budget for fiscal 1995.
In June, the state senate, assembly, and the governor agreed on a fiscal 1995 budget that included additional tax increases and spending measures, causing the gap to grow to about $3 billion. A reduction in state income taxes has caused the projected fiscal 1996 gap to grow even further.