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Tax Limitation Rules Costing States Big Bucks in Downgraded Bond Ratings
Nathan Newman on August 5, 2010 - 4:28pm
When state governments make it nearly impossible to raise taxes to pay their bills, their creditors apparently get very nervous and increase their costs to borrow money. In the case of Arizona, whose dysfunctional tax cuts we've documented in the past, it means that last month, Moody's Investors Services lowered Arizona's debt rating for the second time in less than a year. And as analyst Lee Cokorinos notes:
When Moody's downgraded the state of Arizona's credit rating this past week, it pointed to "voter initiated spending mandates and a requirement for a 2/3 majority vote of the state legislature or vote of the people to increase revenues" as part of the reason. Such measures, Moody's said, "have introduced an above average degree of inflexibility to state finances."
Similarly, when Fitch Ratings cut California's bond rating last month, Reuters blamed the downgrade at least partly on the fact that, "The Golden State is one of just three states that require a two-thirds majority vote from each legislative house to pass budgets."
California and Arizona are not considered to share much beyond terrible current economies-- but the bond markets have noticed both share tax limitation rules that have made balancing their budgets in hard times nearly impossible. And both states are paying for those anti-tax rules with lowered bond ratings and higher costs for taxpayers to borrow money.