Standard & Poor's Corp. yesterday dropped its rating of Maine general obligation bonds to AA-plus from AAA, less than a fortnight before the state's planned pricing of its largest slate of debt ever.
In downgrading the $264 million of outstanding Maine GOs, Standard & Poor's cited "declines in key financial indicators and continued softness in the state's economy."
Maine expects to market $136 million of GOs the week of June 17 through a syndicate led by Paine Webber Inc. Officials from the firm could not be reached for comment yesterday. The AA-plus also would apply to the state's upcoming issue.
State Treasurer Samuel Shapiro said he was unfazed by the rating adjustment. "It's a minor downgrading, and I don't think it's going to affect the pricing on our bonds, as long as Moody's holds our bonds at Aal."
Finance Commissioner H. Sawin Millett Jr. said losing Moody's Aal rating could cost the state from $3 million to $5 million over the lives of the soon-to-be-issued bonds. George W. Leung, managing director for state ratings at Moody's Investors Service, said his agency was not prepared to make a rating change. "We are still awaiting what the budget solutions to the financial problems of the state are," Mr. Leung said. "We'll be getting an update on that next week."
In spite of the agency's negative assessment, Standard & Poor's said that Maine's "low debt burden" and "an economic base that has gained greater income levels and diversity" over the past decade mitigate concern over the state's current straits.
Recent deterioration in Maine's economic base brought with it a jobless rate that reached 6.7% at the end of 1990, compared with a national rate of 5.9%, according to Rachel Tremblay, an economic analyst at Central Maine Power Company. According to Standard & Poor's, the state's unemployment rate has now crested at about 9%.
As the economy ground to a halt, the state had to lower its expectations fore revenue from all taxes. By May, the state had lowered its projected revenue by $184 million for the fiscal year ending June 30. Maine used a combination of deterals, spending cuts, and one-shot revenues to erase its current fiscal year deficit.
Lawmakers and Gov. John R. McKernan now face what they believe could be a budget gap of $1.2 billion in the coming fiscal biennium.
Gov. McKernan has proposed increasing taxes by $298 million, cutting spending by $816 million, and deferring $158 million of expenses such as pension contributions, to bridge the gap.
Like Massachusetts, Maine also wants to tap the Medicaid program. Gov. McKernan has suggested the state could receive $114 million from the federal health payment system for medical tabs Maine picked up.
"The governor's budget proposal has not at this time been accepted by the Legislature and is likely to be changed," Standard & Poor's said. "Legislative leaders have indicated that pension deferrals are likely to be replaced by other spending cuts."
Even as the national economy appears poised to spring out of recession, Maine still faces troubled economic times. Maine's state and local governments will cut 2,000 jobs by the end of 1992, according to Ms. Tremblay. The analyst presented her findings at a conference of the New England Economic Project yesterday in Newton, Mass.
In addition, the U.S. Department of Defense has singled out the Loring Air Force Base in Limestone, Maine, for closing. Such a closing, Ms. Tremblay said, would "devastate Maine's Aroostook County," eliminating 3,500 military jobs and "hundreds" of civilian positions.
Standard & Poor's action automatically removed the state's bonds from CreditWatch, where they had been listed with negative implications since January.
Other securities relying on Maine's fiscal fortunes also suffered downgradings yesterday. The Maine Municipal Bond Bank's $655 million in outstanding bonds fell to an A-plus rating from a rating of AA, as did $7 million of bonds issued by the state's Court Facilities Authority and $16 million in state certificates of participation.