Bloomberg News

Virginia Bid to Offset Federal Cuts Aids AAA Rank, Moody’s Says

September 06, 2011

Sept. 6 (Bloomberg) -- Virginia Governor Robert McDonnell’s proposal to set aside $30 million to offset the impact of any federal budget cuts is a positive step toward keeping the state’s AAA credit rating, Moody’s Investors Service said.

Virginia, which receives the most federal funding per capita after Alaska, is among five states that Moody’s said could lose top bond rankings because of their reliance on U.S. money.

On Aug. 18, McDonnell proposed using part of the state’s $545 million budget surplus to mitigate any spending cuts proposed by Congress. A committee of Democrats and Republicans is charged with shaving $1.5 trillion from the federal budget over the next decade.

“The fund, which is part of the governor’s strategy to counteract anticipated reductions in federal spending, would be credit positive for the state,” Lisa Heller, a Moody’s analyst, wrote in the rating company’s weekly outlook.

“Virginia, like many states, still faces challenges ahead, including an overvalued housing sector, the sluggish national recovery and the deferral of retirement contributions,” she wrote. “Its early acknowledgment of the coming federal cuts, coupled with budget surpluses, however, will allow some flexibility to counteract the cuts and reduce its dependence on defense and federal procurement.”

--Editors: Mark Schoifet, Stephen Merelman

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.


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