Lack of state budget is a bad sign for N.C. credit, Moody’s says

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Moody’s Investor Service, a New York-based credit rating agency, says North Carolina’s failure to pass a state budget is a negative sign, although the state has enough funds to maintain its triple-A rating.

“The lack of a budget for more than four months reflects governance weakness and is credit negative,” Moody’s said in a recent credit outlook report. “Although the state ended fiscal 2019 with a budgetary surplus of nearly $900 million, the lack of agreement on budget priorities amid a time of economic expansion and healthy revenue growth does not augur [bode] well for budgeting and strong governance during times of economic and revenue stagnation or declines.”

The credit agency states that the $23.9 billion and $24 billion in appropriations slated for agency base budgets in fiscal 2020 and 2021 should cover current debt service payments, even if they increase next year. 

Moody’s says the standalone “mini-budgets” passed by lawmakers should alleviate most spending limitations but notes a budget delay could begin to hurt local governments and slow enactment of new state policies.

According to the report, counties with new state funds included in the 2019-2021 Appropriations Act may need to delay the start of capital projects. Local boards of education, which heavily depend on state funds to operate, will face the most limitations. Increasing university populations and associated staffing requirements may cause some problems, and local governments that supplement operating budgets may be requested to contribute more funds, Moody’s says. 

The agency also noted that bills passed in the legislature, which included a corporate franchise tax cut and increases in the standard deduction for income tax filers, would reduce state revenue. Governor Cooper vetoed the franchise tax deduction but approved the standard deduction increase on Friday.

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