Rating Agency Moves Ohio’s Economic Outlook from ‘Negative’ to ‘Stable’

Credit rating agency Standard & Poor’s has upgraded Ohio’s overall economic outlook from “negative” to “stable,” undoing a downgrade it instituted about two years ago when a plan for new gambling revenue started to fall apart. S&P cited restoration of structural balance in the new FY12-13 budget as influencing the upgrade.
The agencies AA+ rating on Ohio’s general obligation bonds remained unchanged in the new outlook released Friday.

“The outlook revision reflects the state’s progress in moving toward structural budget balance through fiscal 2013 and the modest economic recovery underway, which has stabilized revenues and allowed for a contribution to the budget stabilization reserve fund,” S&P analyst Robin Prunty said in a statement.

S&P had cut Ohio’s outlook from “stable” to “negative” in September 2009, when the Ohio Supreme Court rejected the state’s argument that a plan for racetrack slots included in the FY10-11 budget, 128-HB1, was immune from referendum. Though a planned referendum by the group LetOhioVote.org ultimately was called off, the state had to find the hundreds of millions in expected revenue elsewhere, with former Gov. Ted Strickland ultimately winning legislative approval to delay a planned cut in the state income tax. (See The Hannah Report, 9/24/09, 12/22/09, 6/28/10.)

The agency cited several factors Friday in upgrading the outlook, including “Ohio’s long track record of proactive financial and budget management, including its implementation of frequent and timely budget adjustments over time to mitigate lower revenues.” Strickland ordered nearly $1.9 billion in budget cuts and adjustments throughout 2008 as the nation slipped into recession following the mortgage crisis. (See The Hannah Report, 12/19/08, 9/10/08, 1/23/08.)

According to S&P, other factors contributing to the rating included the reserves Ohio had set aside before the financial crisis began; the FY10-11 budget, which it described as “narrowly balanced using significant nonrecurring resources to offset ongoing revenue weakness and certain payment deferrals”; “a vast, broad, and diverse economic base despite weak performance in recent years”; moderate debt and conservative debt management; and “steady progress in funding other post-employment benefits even though pension liabilities have increased and funded ratios have