Ohio gets negative credit-rating outlook

COLUMBUS (AP) — A major ratings agency has given Ohio’s credit rating a negative outlook, partially because of decisions made in the latest state budget, putting the state in danger of having its rating dropped again.

Moody’s Investors Service cited the state’s decisions to delay debt payments until future years and rely on revenue from expanding gambling that’s facing a legal challenge as factors in its decision last week. It also repeated concerns about the overall outlook of the state’s economy and revenue picture.

In June, Moody’s dropped the state’s rating from the second-highest to the third-highest and gave it a stable outlook. Monday’s move suggests the state’s credit rating is at risk of seeing another drop.

The lower a state’s credit rating, the more expensive it becomes to borrow money to finance a variety of infrastructure projects.

Allison Kolodziej, a spokeswoman for Gov. Ted Strickland, said the state’s rating continues to be solid despite the national economic downturn and noted that the latest outlook change did not impact the cost of issuing coal-development bonds last week.

“The marketplace continues to view Ohio as a high-quality investment,” Kolodziej said.

Moody’s analysts noted that Ohio has a strong history of reducing spending to respond to economic challenges but said the state is increasingly using one-time cash solutions to fill ongoing budget obligations. In the current budget signed into law in July, Ohio — like other states — is relying on federal economic stimulus money to plug budget holes and is putting off $736 million in debt payments until future years.

A judge also has ruled the state can’t use $259 million in tobacco-prevention funds for other budget projects, as the budget called for. Strickland is appealing the decision.

Moody’s analysis also noted that the budget relies on an estimated $933 million from the expansion of the Ohio Lottery to run slot machines at horseracing tracks. Oral arguments are scheduled for Wednesday in the Ohio Supreme Court in a court challenge to the plan.

The Moody’s report acknowledged that many other states face the same challenges from the economic recession that began in December 2007. But it also said Ohio has its own set of problems, primarily because of the decline in manufacturing.

“The long-running structural changes affecting Ohio’s economy indicate that the state may have difficulty recovering jobs in tandem with national trends as the recession ends,” the report said.

The strength of Ohio’s rebound also will determine whether it sees an increase in tax revenue. Moody’s said a tax overhaul ushered in by Republicans and later supported by many Democrats, including Strickland, poses a challenge for state revenue.