MONTPELIER — Standard & Poor’s revised Vermont’s AA+ general obligation bond rating outlook Monday to stable, down from positive, based on the state’s economic outlook.
Robin Prunty, S&P’s lead credit analyst for Vermont, said the revision is due to the state’s slow pace of economic growth, despite above-average income levels and low unemployment.
“The outlook revision reflects Vermont’s slower-than-average economic recovery, which continues to pressure the budget, in our view,” Prunty said in a release.
A positive rating indicates expected economic growth over a two-year period, according to S&P, while a stable rating indicates little to no growth is expected in that timeframe.
The revision was made despite “strong financial and budget management policies that have contributed to consistent reserve and liquidity levels over time.” The S&P report outlining the revision also noted “significant pension and other post-employment benefits … which remain sizable relative to those of state peers despite some recent reform efforts.”
The report cites “weak” demographic trends in Vermont relative to the region and national trends. The estimated 2013 population in Vermont of 627,000 residents is just 0.1 percent more than the 2010 level, according to S&P.
Economic growth is lagging, according to the report.
“Vermont’s pace of economic recovery has been uneven and more recently, growth has lagged the U.S.; we expect this to continue,” the report states.
Vermont’s October revenues were $7 million, or 11 percent, off the mark. Democratic Gov. Peter Shumlin said his administration is considering further revisions to the state budget to balance the state’s budget based on the revenue stream.
“The October revenues were disappointing and we’re continuing to do well in the sales tax, rooms and meals tax, in fact they’re up. We had a lot of visitors come to Vermont not only last winter but throughout the leaf-peeping season,” Shumlin said at an unrelated news conference Monday.
But the state’s income tax continues to falter, he said.
“We continue to see poor performance in the income tax, and that’s really the concern. So, my job is not only to try to figure out what that trend means, try to figure out where it’s going and what’s driving it, but also to make any adjustments that might be necessary so that we balance the budget,” Shumlin said
The administration made a $31 million rescission to the budget in August, and another one will likely be needed, according to Shumlin. He said his administration is trying to determine if another rescission is needed before lawmakers tackle the annual mid-year budget adjustment early next year.
“I would be surprised if one is not necessary if the revenues continue to perform as they have for the last couple of months,” Shumlin said.
The report states that Vermont has “a very strong budget management framework,” and if that leads to higher reserve levels in the future, the rating could be revised upward. An improved position with pension and other post-employment benefits could also result in an upgrade.
Conversely, the report states that a worse reserve and benefits position could lead to further downgrades.
“Although we do not envision it at this time, given Vermont’s history of proactively managing its budget and recent actions to address post-employment liabilities, substantial deterioration of budget reserves or a deteriorating liability position could negatively pressure the current rating,” the report states.
UPDATE: The original headline and lede have been changed to reflect that the state’s bond rating has not been downgraded. Rather, the outlook on the state’s rating for general obligation bonds has been downgraded from positive to stable.
Read the report below: