One of the leading credit rating agencies on Tuesday threw cold water on Bay State Democrats’ argument that a temporary suspension of the state’s gas tax could lead to a bond rating downgrade and higher borrowing costs for the commonwealth.
Some states, including neighbors Connecticut and New York, have temporarily pulled back on their state gas taxes to give consumers relief from sky-high prices during a period of historically high rates of inflation. But on Beacon Hill, Democrats have rejected the idea of a gas tax suspension with many pointing to the potential effects it could have on the state’s bond rating since gas tax revenues are used essentially as collateral to secure more favorable interest rates.
During her Monday night appearance on WBZ NewsRadio’s Nightside with Dan Rea, Senate President Karen Spilka was asked about a gas tax suspension and said that “it appears as if the rating agencies were not looking fondly on us doing that.”
“If we substitute other money, then it’s not as reliable and dependable because we could take other money and move it around. And the bond rating could suffer, thereby causing the state to end up paying tens of millions of more money in borrowing,” Spilka said in response to a question from a caller named Frank in Lawrence. Spilka then pointed to rebates for electric vehicles included in the Senate’s upcoming climate bill as alternative relief for drivers.
But on Tuesday, S&P Global Ratings declared that “temporary state gas tax suspensions, implemented recently by a few U.S. states, and under discussion by others, are unlikely to lead to rating changes on highway user tax-supported debt.” The firm added that it does not “expect state gas tax suspensions will have a significant impact on general obligation (GO) bond ratings” but said that it “could potentially take a rating action” if future state gas tax suspensions result in significant declines in debt service coverage.
“We believe a temporary tax change on one component of pledged highway user tax revenue is unlikely to have a long-term impact. To the extent that a temporary gas tax cut was made permanent, or debt service coverage was lowered to levels below an additional bonds test, further review could be warranted,” S&P said. “A greater risk is the potential long-term threat of reduced gas consumption from electric vehicles.”
House Speaker Ronald Mariano has also used the state’s bond rating as a justification for leaving the state’s 24-cent-per-gallon tax in place.
“If you look at what it will do to our bond rating and what it will do to the price of us borrowing money to finance the road and bridge projects that this money is committed to, we find ourselves in a very, very precarious situation,” Mariano said last month.