CHICAGO -- Most Great Lakes states were better prepared to weather the current recession than other regions in the nation, according to a report released yesterday by Standard & Poor's Corp.
However, the lingering recession may force governments in the region to make "some hard choices," according to Vladimir Stadnyk, a managing director at the rating agency.
The agency said the Great Lakes region -- Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin -- came out of the severe recession of the early 1980s with "prudent fiscal plans" that laid the foundation for "modest and controlled growth through the decade."
The region was also able to capitalize on the nation's subsequent economic resurgence, "leaving the region in fairly strong fiscal condition and with relatively high credit ratings" going into the 1990s, the report says.
Still, the inability to shake the current recession has put pressure on many state governments in the region, some of which incorporated one-shot measures to bring their fiscal 1992 budgets into balance. And now some of those budgets are under pressure.
For example, underperforming revenues have led Michigan to plan a $500 million-plus short-term note borrowing for cash-flow purposes next month, while a revenue slump and a pileup of old bills in Illinois resulted in a record-low general revenue fund balance of $153,000 at the end of October.
Mr. Stadnyk said keey factors for maintaining ratings in the region are economic performance and its effect on revenues. Another factor is governments' willingness to make tough choices if the recession continues to erode finances, he said.
"If they want to maintain their ratings where they are, they will need to raise revenues or pare expenditures," he said, adding that the agency's expectations are that "hard choices will be made."
Standard & Poor's report singles out Illinois's property tax cap, which went into effect Oct. 1 in five suburban Chicago counties, as a factor that could pressure local government ratings in that area.
The law, which limits property tax growth to 5% or the inflation rate, whichever is less, could particularly affect school, fire, library, park, and forest preserve districts due to their heavy dependence on property taxes, the report stated. The law also requires voter approval of general obligation debt.
Standard & Poor's said it will examine "the extent of new expenditure pressures, especially those mandated by the federal and state government" when evaluating the impact of the new law on credit quality.
The agency also reviewed hospital ratings in the five states, finding that while most ratings continue to face pressure, the region's urban hospitals were under "even greater stress from declining admissions and profitability."
However, the agency said it expects "the region's stronger and more diverse economy to mitigate some of the credit erosion that inevitably occurs during a recession."
The report, which covered a total of 280 issues, representing $10.5 billion or 16% of the nation's health-care debt, says 7.5% of the issues are rated AA, 57.1% rated A, 29.6% rated BBB, and 5.7% carry speculative ratings.
