Gov. Bob McDonnell and state leaders are heading for New York City in early January to meet with fiscal experts at the three bond rating agencies to talk about the state's sterling AAA bond rating.
McDonnell was quick to tell Chelyen Davis over at the Fredericksburg Free Lance Star that there are no indications that the AAA bond rating is in jeopardy, but he said he wants to sit down with the financial heavyweights to make sure they approve of what he's doing specifically with the Virginia Retirement System.
The basic breakdown of the bond rating is that having a pristine AAA rating means that the state's finances are managed well, the state's debt capacity isn't too high and the outlook for the future appears steady. The rating is important because it saves the state millions on loans and financing charges that other - less fiscally restrained states would have to pay to get access to money.
Further, there is an important symolism attached to the rating, because having a AAA rating sends a message to business leaders looking for places to start a company or move to a new state with a good workforce.
Fears over the AAA bond rating were last raised in 2004 when Gov. Mark. R. Warner successfully piloted a plan of increased taxes through the General Assembly.
This is a big deal for McDonnell, because his transportation plan includes floating about $3 billion worth of bonds for road projects and state leaders are considering taking another look at the self imposed cap of 5 percent of revenues going toward debt capacity.
If he's looking to polish his conservative resume, making too many decisions that involve debt spending is a treacherous thing, especially with tea party folks railing against Democrats in Washington for making the same moves.
Here's a snippet from the Freelance Star:
Houck is concerned about how the agencies will view McDonnell's recent proposal to use bonds--some of which were authorized several years ago--to pay for transportation projects.
"Coming at a time when the governor has recommended extensive bonding for transportation programs, I have to assume there's some connection to that" and the meetings, Houck said. "It's weighing heavily on my mind. Hopefully, this will be an opportunity to hear directly from the rating agencies about our standing, our debt capacity, his new proposal, how it may or may not impact their analysis of Virginia's overall financial business."
Houck said he isn't fully conversant with the specifics of McDonnell's transportation plan but is concerned that the bonds involved could trouble the rating agencies. Last month, the Senate Finance Committee heard a presentation on how Virginia has increasingly been relying on debt to pay for things that it used to pay for in cash.
The state's outstanding tax-supported debt grew 54 percent, $3 billion, from 2005 to 2009. The state limits itself to debt service of no more than 5 percent of revenues each year, although the debt capacity advisory committee recently recommending changing that to an average over 10 years.
The important thing to remember here is that this is a long term story, don't expect panic or anything after the meeting on Jan. 4 with the ratings folks. But you can expect it to be a consistent undercurrent for spending decisions in the near future and any kind of bonds are going to get close looks because of an ingrained fear about the AAA rating. So watch for critiques and grumbling at this point.
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