The budget deal that ended Minnesota's 20-day state government shutdown could sink the state's strong credit rating.
Minnesota's strained finances prompted Moody's Investors Service on Monday to lower the state's outlook, saying leaders' reliance on borrowing and withholding of payments to K-12 schools did little to fix the state's structural budget problems.
The refusal to raise taxes or impose deeper budget cuts "makes Minnesota an outlier" among other states with similar credit ratings, said Kimberly Lyons, a Moody's analyst.
Moody's announcement sends a red flag that the agency could lower Minnesota's bond rating, which means taxpayers will pay more when the state borrows money for buildings, roads and other projects.
"Sooner or later, we need to fix the state's budget so that it does not rely on one-time solutions," Minnesota Management and Budget Commissioner Jim Schowalter said Monday, upon receiving the Moody's notice. "Until a structural budget balance is achieved, we cannot assume that Minnesota's financial condition is well above average."
Lyons said Minnesota officials have had years to deal with the persistent gap between the state's revenues and expenditures, as government costs rose, tax revenues slipped and one-time federal stimulus money dried up.
While other states made politically painful decisions, Minnesota's bipartisan "political intractability" resulted in solutions that leaned heavily on accounting shifts and gimmicks.
Lyons said Minnesota's economy remains fundamentally strong, but it is unlikely that the economy will be robust enough to close the budget gap.
Less than a month ago, Fitch Ratings cited the same reasons in lowering its assessment of Minnesota's debt.
Standard & Poor's continues to give Minnesota its highest credit rating, AAA, but the agency is expected to reassess the state's financial strength soon.
Baird Helgeson • 651-222-1288
