State financial leaders hoping to impress credit rating firms

JIM DAVENPORT, Associated Press

COLUMBIA -- In a show of unity absent for months, South Carolina's top financial leaders will meet today with the three credit rating agencies that decide how risky it is to lend the state money.

Standard and Poor's already has lowered the state's AAA rating, the highest given, by a notch as Gov. Mark Sanford and other members of the state Budget and Control Board argued about what ailed the state's economy.

The two other major credit rating firms, Moody's and Fitch, have told Wall Street and lenders that they're watching the state closely, but they haven't lowered their top-tier ratings for the state's debt.

Today's meeting will include Sanford, state Treasurer Grady Patterson, Comptroller General Richard Eckstrom and House Ways and Means Committee Chairman Dan Cooper -- four of the five members of the state Budget and Control Board. The board handles most of the state's day-to-day financial affairs.

Since the beginning of the year, Sanford and Eckstrom have sparred with other board members and the Legislature about exactly what problems prompted the Wall Street jitters.

One side argued that it was Sanford's plan to lower the state's top income tax rate -- a proposal that would cause the state to forgo about $1 billion in taxes. Sanford and Eckstrom argued that the Legislature's failure to repay money raided from trust accounts to balance the state's budget was the chief concern.

In July, Standard and Poor's Ratings Services said the problem was slow economic and job growth as it lowered the state's credit rating from AAA to AA-plus.

The past discord raises the stakes for today's meeting.

It is "important that we provide a united front and that we're speaking with one voice," said House Speaker Bobby Harrell, who was a board member earlier this year as House Ways and Means chairman and occasionally sparred with Sanford about what problem needed to be addressed.

"This meeting … struck me as a way to accomplish that," said Harrell, R-Charleston.

Sanford plans to talk to the credit rating agencies about his upcoming executive budget. "The governor is going to make the case that South Carolina's economy is strengthening," Sanford spokesman Joel Sawyer said.

For instance, last week the state Board of Economic Advisors said revenues should increase by $466.9 million in the 2007 budget year, which begins next July. That's driven by a surge in tax collections since July, including a 9.5 percent, or $100 million, increase in individual income tax collections.

Despite a high unemployment rate, "South Carolina's three major sources of revenue are up compared with last year," Sawyer said. "We've gained roughly 43,000 jobs over the last year," he said. "You can look at any number of data points that show that we're gaining strength with regard to our economy."

Mark Vitner, a Wachovia Corp. senior economist, said he'll make the case that South Carolina's economy is growing. While the state has been slow coming out of the recession, it "seems to be doing just about everything right," Vitner said.

Some of the data credit rating agencies use may not show the full picture of South Carolina, Vitner said. For instance, an adjustment in the way the state's jobless figures are reported has skewed the outlook, he said.

"There wasn't a change in economic performance, it was a change in measurement," Vitner said.