By David Flemming
The good news: one of the top major credit agencies applauded Vermont’s legislators for recognizing that Vermont has a population problem.
The bad news: that same credit agency, Fitch Ratings, said that it would still downgrade Vermont’s bond rating from a perfect AAA bond rating to AA+.
Why did Fitch choose to lower Vermont’s rating? Our labor force is “flat to declining” in the past decade. Fitch has a “lowered view of the state’s growth prospects and the state’s ability to raise revenue from its tax base,” according to employee Eric Kim.
Fitch is part of “The Big Three” credit rating agencies. Just 10 months ago, Moody’s also downgraded Vermont from its perfect rating. The other credit agency, Standard & Poor’s, has given Vermont a less than perfect rating for a while now. This means that when Vermont’s government needs to raise money quickly by selling bonds to investors, the investors can demand higher interest rates to offset the slightly higher risk that Vermont will not be able to pay interest on those bonds.
Vermont can no longer blame the 2009 Recession for its problems. Most of the other 50 states has seen at least some population growth in the past decade while Vermont has been stagnant.
That said, Vermont still maintains one of the highest credit rating relative to other states in the region. We can borrow money at the same rate as Massachusetts and New Hampshire, and can borrow money more cheaply than Connecticut, Maine and Rhode Island.
What does all this mean for Vermonters? More taxpayer money will need to go toward paying down pension debt and the like, rather than towards government services. Gov. Phill Scott said on Thursday that it’s uncertain how much taxpayer money will need to be diverted.
In the long run, the only way we can repair our rating is if our workforce can grow substantially with policies that are friendly toward economic growth.
David Flemming is a policy analyst for the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.