Missouri Governor ? Michael L. Parson

Office of Communications

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FOR IMMEDIATE RELEASE

February 25, 2020

Three Major Credit Rating Agencies Affirm Missouri?s AAA Credit Rating, Respond Positively to Proposed Cash Operating Expense Fund

(JEFFERSON CITY, MO) ??All three major credit rating agencies recently affirmed Missouri?s AAA credit rating and responded positively to Governor Mike Parson?s proposed establishment of a Cash Operating Expense Fund (COEF) in Missouri.

Governor Parson initially announced the COEF in his 2020 State of the State Address, proposing that $100 million be set aside this year to initiate the fund.?

?Since the beginning of our administration, our State Treasurer, Budget Director, and my Chief of Staff have been discussing the opportunity to establish a Cash Operating Expense Fund,? Governor Parson said. ?This would not only ensure that Missouri is financially prepared for the unexpected but also protect our key budget priorities ? both critical to maintaining our AAA credit rating and long-term financial health.??

Currently, there are only approximately 12 states in the country with an AAA rating. Governor Parson's COEF proposal would build and strengthen Missouri's AAA rating with a credit positive impact.?

?As a former Budget Chairman and now State Treasurer, I know firsthand how valuable planning for a rainy day can be,? State Treasurer Scott Fitzpatrick said. ?I am proud of Missouri?s AAA credit rating, and I am happy to support the Governor?s proposal for a Cash Operating Expense Fund to weather changes in revenue and aid in maintaining Missouri?s AAA credit rating from all three major rating agencies.??

Missouri?s current rainy day fund falls below other states? reserve fund averages and has burdensome restrictions that prohibit the use of the funds in times of need. While the state maintains an AAA credit rating, the budget is still susceptible to unforeseen disasters. These scenarios have historically led to critical programs being cut and funds being withheld or left out of the budget all together.?

By responsibly saving for the future, Governor Parson?s proposed COEF would strengthen Missouri?s long-term financial health, protect budget priorities, and provide greater flexibility and security in times of economic downturn, low revenue, or declared disaster.?

?In 2019 alone, 86 Missouri counties and the City of St. Louis were affected by two federal disaster declarations,? State Budget Director Dan Haug said. ?Establishing a Cash Operating Expense Fund will give the state another tool to deal with future natural disasters and economic downturns, helping ensure Missouri?s fiscal stability long term.?

What The Credit Rating Agencies Are Saying:?

Moody?s Analytics - ?The governor's proposed fiscal 2021 budget includes the establishment of a cash operating expense fund. The proposal, if adopted, would be credit positive. The fund would be used as another tool at the governor's disposal in the case of a revenue downturn. The governor's proposal would create the fund with an initial $100 million that could be transferred to the general revenue fund if revenue does not meet projections during the fiscal year. The proposal also includes a mechanism to add money to the fund from collections of sales taxes from remote sellers. Each year, online sales tax collections would be added to the fund until it reaches 2.5% of the prior year's general revenue. Any amount received above the 2.5% target would be used for one-time purposes. If the proposal is adopted, state officials expect the executive office to continue using expenditure restrictions as the main tool to respond to a revenue shortfall, but the establishment of the fund would provide additional financial flexibility in the case of a downturn.?

S&P Global Rating - ?The governor's legislative recommendation would use a portion of this sales-tax source to fund a cash-operating expense fund until the fund reaches 2.5% of the previous year's collections, which could be used to fund emergency expenditures or manage significant budget shortfalls. Although only proposed, we generally view a state's efforts to increase reserves during an economic expansion to prepare for a future downturn as a credit positive.?

Fitch Ratings - ?Fitch nevertheless views Missouri's gap-closing capacity to be very strong based on its long prior history of proactive expenditure reductions to close budget gaps, solid reserve cushion and formidable, if rarely-tapped, rainy day fund (i.e. the BRF). Fitch believes the BRF would provide Missouri with significant fiscal resilience during either a cyclical downturn or unanticipated fiscal emergency. Furthermore, if Governor Parson's proposal to establish a second counter-cyclical reserve fund for the state (i.e. the COEF discussed above) is adopted and funded at the governor's suggested 2.5% of net general revenues target - with less stringent requirements for use and replenishment compared with the BRF - Fitch believes this could provide added resilience to Missouri's fiscal operations during recessionary downturns.?

For more information on the cash operating expense fund, please see attachment.

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