Note: This is part of the Josiah Bartlett Center’s week-long investigative series on the New Hampshire Treasury.

Part III: Checking New Hampshire’s Credit Report

As we sat down for our final interview, Cathy Provencher was preparing the state’s $125 million General Obligation Bond, which is how New Hampshire borrows the money to fund it Capital Budget. The cost and desirability of those bonds is largely determined by three national bond rating agencies, which grade the credit worthiness of each state.

State Treasurer Cathy Provencher

In March, Fitch Ratings downgraded California’s Bond Rating to the worst in the nation just before the Golden State issued $6.54 billion in bonds for infrastructure improvements. Earlier this week, Moody’s lowered Illinois’ bond rating to the second-worst in the nation, citing an $11 billion budget gap, equal to 35% of state expenditures.

Standard and Poor’s currently rates New Hampshire as AA, while Moody’s had New Hampshire has AA2. Both are in the middle of the pack relative to other states. Seven states currently enjoy top AAA ratings from both agencies.

“We’ve been AA since 2002,” Provencher explains. “I think New Hampshire continues to be an extremely strong credit in relation to our peers.”

Vermont has the best credit rating in New England, AAA by Moody’s. Massachusetts and Maine have similar ratings to New Hampshire on Moody’s index, and Maine is slightly lower than the Granite State according to Standard and Poor’s. But Provencher claims that New Hampshire’s economy makes for a better investment climate.

“Another strength of our credit it that historically in down economies, we bounce back more quickly that our New England peers,” she argues. “We also in relation to other public sector entities have a very low debt load. There’s not much New Hampshire debt out there.”

Provencher says she didn’t run into any major concerns when she spoke with the bond rating agencies about the state’s short-term Bond Anticipation Notes in August.

“Moody’s and Fitch have reaffirmed our credit, but it’s different than when we do a full General Obligation Rating. When we have rating calls for our General Obligation Bonds, the things that the rating agencies are interested in are: the health of our overall economy, our ability to pay debt service for 20 years hence, not just what things look like today.”

Provencher says the agencies are also interested in the balance of New Hampshire’s Rainy Day Fund, which was drawn down significantly to help balance the current budget.

“But it’s raining,” she emphasizes. “They look at our debt load. They look at our debt per capita. They look at our tax structure. Is it a sustainable tax structure? They look at a very broad picture of New Hampshire, in relation to other similar credits. So I remain confident.”

Manchester Mayor Frank Guinta and Governor John Lynch recently sparred over financing for the city civic center, now called the Verizon Wireless Arena. In 2000, Manchester voters approved financing for the building based on repayments from the city’s share of the state Meals and Rooms Tax. Moody’s recently downgraded the civic center bonds to junk bond status after calculating that those receipts wouldn’t be enough to cover payments. Moody’s statement refers to slowing overall revenues, and a change in the state budget that freezes revenue sharing at 2009 levels. Provencher argues that the Manchester bonds shouldn’t hurt the state’s bond rating, even if they were secured with state money.

“That was very clearly labeled in my opinion as a risk factor when that debt was issued,” Provencher says. “The Meals and Rooms tax distribution that cities and towns receive in December would not have been any different is that law had not been amended. They’re getting the same amount this year that they would have received with no amendment in statute.”

In 1995, Manchester lawmakers sought a state guarantee for the civic center bonds. SB 175 passed the State Senate, but was soundly defeated in the House by a vote of 207-130. When the bonds were issued in 2000, the original bond statement emphasized that bondholders would have no recourse if the state stopped sharing tax revenues with Manchester.

“There is no requirement in the Financing Agreement, or otherwise, that the State maintain the M&R Taxes in their present form, maintain the present allocation of tax receipts to cities or increase the rate of M&R Taxes in the event that Incremental M&R Taxes do not meet debt service requirements on the Series 2000 Bonds. M&R Taxes levied and collected by the State may be inadequate to produce Incremental M&R Taxes sufficient to satisfy the obligations of the City to make Installment Payments in amounts sufficient to pay debt service on the Series 2000 Bonds. The New Hampshire legislature may repeal or amend the provisions of law relating to the level, collection or allocation of M&R Taxes. ANY SUCH CHANGE MAY ADVERSELY AFFECT THE ABILITY OF THE CITY AND THE AUTHORITY TO PAY DEBT SERVICE ON THE SERIES 2000 BONDS.” (Emphasis in original.)

Provencher stresses that since the state never promised to back the Manchester bond, it wouldn’t be held against the state’s bond rating. “It could on the City of Manchester’s, if the city would allow those to default.”

Part 1: New Hampshire Looking to Borrow $125 Million Next Week

Part 2: Living in a Cash Flow World

Part 4, Building Aid Moratorium Won’t Solve Building Aid Problem

Part 5: New Hampshire’s Investment Strategy