Leslie Parks of Minneapolis was locked out of her home after being notified that an agreement would allow her to stay there. This pattern has been repeated throughout the United States., a photo by Pan-African News Wire File Photos on Flickr.
AUGUST 1, 2011, 4:02 P.M. ET
Moody's Lowers Minnesota Outlook To Negative On Strained Finances
DOW JONES NEWSWIRES
Moody's Investors Service revised its outlook on Minnesota to negative from stable, citing strained state finances and the significant use of nonrecurring measures to help balance the state's budget.
News of Minnesota's budget woes made headlines last month after a spat between Democratic Gov. Mark Dayton and Republicans who control both houses of the legislature. The impasse over how to close a projected $5 billion shortfall for a two-year budget led to a government shutdown for a short period.
Moody's noted the enacted budget, which assumes spending of $35.9 billion over the next two-year period, doesn't implement any new permanent revenue-raising measures. Instead, it relies largely on nonrecurring measures to solve the budget gap for 54% of the budget solution, while spending reductions make up for the remaining 46%.
Minnesota has incorporated nonrecurring measures to fix budget shortfalls since fiscal 2009, when the economic downturn reached the state. Each subsequent year, the state continued to increase the use of one-time measures for a quick fix, creating a structural budget imbalance in future years. Moody's warned the state will face "significant obstacles" in achieving a structurally balanced budget in the next cycle as a result of those actions.
Those negative factors have put Minnesota in a weaker position than other states within the same rating category. The outlook change on the Aa1 rating, which is one level below Aaa, affects about $6.1 billion in outstanding debt.
On a positive note, the state has a fundamentally strong economy as it isn't dependent on any one sector that could lead to economic weakness beyond what is experienced by the U.S. as a whole. Personal income per capita is consistently above the U.S. average and the state's unemployment rate has fallen below the national average since the first quarter of 2009.
-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com
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