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Alabama's credit rating challenged

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MONTGOMERY, AL (WSFA) -

After voters approved Amendment One on September 18, one of the major economic and financial analysis agencies took notice.

In a recent report, Moody's classified the move to divert $437 million over for three years from the Alabama Trust Fund to the General Fund as "credit negative." In explaining the characterization, the report continued and said, "Although the amendment averts the need for broad service cuts, it also means the state plans to rely on non-recurring revenue for operations."

In other words, Moody's believes that since the state is relying on one-time money for a three-year period, without continuous revenue to fund those vital services, the state's credit rating is at risk.

Alabama still has a AA1 rating from Moody's which is very strong. The agency also did not change the outlook for Alabama's rating, which left it in the same, "stable" status.

Governor Robert Bentley's administration has challenged the finding of the September 18 vote by Moody's as being classified "credit negative." In a statement, the state's Associate Finance Director Bill Newton focused on how for the second straight year the governor has passed a balanced budget, as required by law, but has also made moves to save the state hundreds of millions of dollars in spending cuts.

Newton said, "These efforts have produced impressive results that are not mentioned in the Moody's report."

The governor has mentioned repeatedly over the past several months the efforts to save the state a billion dollars, and how lawmakers approved a plan to shift revenues from use taxes and online sales taxes to the General Fund. The General Fund is the source of funds for all non education agencies. Medicaid and the Department of Corrections receive the lion's share of General Fund expenditures.

The move to direct some online sales tax revenues to the General Fund is contingent on Congress passing legislation to require online retailers to pay local and state sales taxes. That legislation is not likely to pass until the next Congress convenes next year.

Using the Alabama Trust Fund to balance the General Fund temporarily was a necessary move according to Newton with the Finance Department. "The Governor has stated that the use of the State's savings account is the best option for getting through the current economic difficulties" Newton said. "He also pledged that these transferred funds will be repaid to the Alabama Trust Fund."

The danger for Alabama having its credit rating downgraded could be felt in many ways. It could cost more for people to take out home loans or there could be higher interest rates on some loans.

We will have more on this story on WSFA 12 News at 6.

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