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Moody’s Gifts Fossil-Fuel States With Positive Credit Outlook

11:24 AM EST on March 4, 2010

Picture1.pngComparing the falloff in state tax revenue to shifts in total unemployment. (Chart: Moody's)

Credit-rating agencies -- particularly Moody's and S&P, the nation's two premier shops -- wield significant influence over the financial health of private companies. But state and local officials are often equally dependent on good credit ratings to borrow money for transportation and infrastructure improvements.

Even the federal government monitors its credit outlook to a degree that might surprise the average voter. When Moody's suggested last month that the mounting deficit might imperil America's AAA rating (the highest available), Treasury Secretary Tim Geithner leapt to the defense of Washington's fiscal health.

So which states do credit raters believe are weathering the recession, and which will continue to struggle with yawning deficits that jeopardize their ability to invest in transportation and infrastructure? Bob Kurtter, manager of Moody's state ratings team, addressed the question last month during a speech at New York University's Institute of Public Knowledge.

Only two states, California and Illinois, have seen their credit downgraded in recent months, Kurtter said. Negative credit outlooks have been issued for 15 more states, and two are benefiting from positive credit outlooks: West Virginia and Louisiana.

Why are things looking rosy for those two governments?

"They got buffered on the early part of this downturn" thanks to their reliance on coal and oil production, Kurtter said. The two states "both have very conservative administrations that have managed pretty aggressively."

When states can reap credit gains by doubling down on fossil fuels, it's easy to see why coal- and oil-state lawmakers are resisting legislative action on climate change. Take West Virginia Sen. Jay Rockefeller (D), a longtime supporter of transportation reform who today proposed to block the Environmental Protection Agency from reining in emissions for two years -- a delay twice as long as what many Republicans had endorsed.

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