Agenda Texas: Bond Rating Battle

When we were talking about the politics of transportation funding, we heard from Tea Party activist JoAnn Fleming. She and her fellow Tea Partiers are not fans of more state spending, especially not if the money to build roads or water infrastructure comes from the state's Economic Stabilization Fund, known as the Rainy Day Fund.

“If they take $6 billion out of the Rainy Day Fund, the Tea Parties of Texas believe that our AAA credit rating will be in danger. We think our state will be weaker," Fleming said.

That idea that the state needs to leave several billion dollars in the Rainy Day Fund to protect its bond rating is often heard around the Capitol as a reason to leave the fund — projected to total almost $12 billion by 2015 — alone.

Gov. Rick Perry tipped his hat to the idea in his State of the State speech in January.

“The Rainy Day Fund was created to ensure we had a sufficient amount in reserve in case of a disaster, and to maintain Texas' strong credit rating," Perry told lawmakers at the start of the legislative session.

But Perry also thinks leaving the fund untouched isn’t good either.

“We need to maintain a strong Rainy Day Fund," Perry said. "While we cannot and we will not raid that fund to meet ongoing expenses, we also shouldn’t accumulate billions more than is necessary."

So what’s the truth? Does spending down the Rainy Day Fund hurt the state’s standing in financial markets?

Rice University political science professor Bob Stein offered a rundown of what bond rating agencies look for when they give out those ratings.

"Clearly the bond rating companies look at simply the capacity of the state to what we call 'service the debt,'" Stein said.

But to determine credit worthiness, the bond rating agencies also look at how the state is spending its money.

"The economic theory has always been that you would invest in things like capital expenditures because that attracts productive capital and labor to your community that will buy homes and buy commodities and they will generate taxes that you can then use to finance those bonds," Stein said.

So while some people argue that spending any of the Rainy Day Fund will hurt the state's bond rating, not spending any of the fund could hurt it, too.

The most anyone is proposing to spend out of the fund this session is $6 billion for transportation and water projects. That would leave a little less than $6 billion for lawmakers to use, or not, in the 2015 legislative session.

Where would you make it rain in the Texas budget? Drop us a line at AgendaTexas@kut.org. And our ratings never drop on Twitter: @AgendaTexas.