Treasurer says U.S. credit rating downgrade won’t hurt Nevada

CARSON CITY -- State Treasurer Kate Marshall doubts the U.S. government's credit rating downgrade will hurt Nevada because credit costs have been dropping and the amount of federal funds the state receives is the second-lowest in the nation on a per capita basis.

The federal downgrade has not led to any change in the credit ratings of the state or local governments in Nevada or increases in borrowing costs, she said.

Presumably, the federal government will have to spend more on borrowing and have less money to allocate to state and local programs because of its downgrading. But Marshall and local government officials aren't seeing that. They say their borrowing costs are lower than ever, in part because investing in government bonds or notes is more secure than playing the yo-yoing stock market.

Marshall said this week that the state's own credit rating was reduced in March by Standard & Poor's, but the state still has been securing its lowest-ever costs on securing loans. Nevada local government and school officials also said they do not expect to be harmed by S&P's decision on Aug. 5 downgrading the federal credit rating to AA+ from AAA.

"We have not paid a nickel more (because of the Nevada credit downgrade)," Marshall said. "We are at historic lows, paying in the 3's (percent interest rates on bonds).

The reason that's happening, said Jeff Weiler, financial officer for the Clark County School District, is because of the slide in stock values. Investors are putting more money in government bonds and notes and driving down the interest rates governments pay them to obtain credit.

He and Eric Pappa, a Clark County government spokesman, said they have not seen any negative local effect from the credit downgrade and don't expect one.

Weiler said the school district isn't issuing any new bonds, but Marshall said she might try to take advantage of the lower borrowing costs by issuing new bonds to replace existing state bonds that are more costly.

Nevada Association of Counties Director Jeff Fontaine isn't as concerned about the federal credit downgrade as much as what happens this fall when Congress returns from its recess and starts looking at additional ways to reduce the deficit. The association represents all of Nevada's counties at the Legislature.

"Our concern is what happens to us in the next round of budget cuts," he said.

According to officials contacted by The Associated Press, the downgrade of federal credit will be felt most in states like Virginia and California with high numbers of federal workers or contractors, large military presences and generous Medicaid programs. Nevada is not one of these states. Its Medicaid program offers fewer health care benefits to the poor than in any state.

The new AA+ credit rating for the federal government is the same rating Nevada had until March when Standard & Poor's downgraded it to AA. In downgrading Nevada, S&P cited the state's dependence on tourism spending and the need for an economic recovery in other states as primary factors for the change.

The lowering of the federal credit rating and fears of a new recession have spawned a massive decline in the stock market. Dow Jones values have ping-ponged up and down all week but dropped nearly 2,000 points in the past three weeks.

Marshall, whose office manages state investments and finances, said it is not clear yet what is happening on Wall Street. She said the market is "trying to figure out what to do," with stock values dropping 600 points Monday and then gaining 400 points on Tuesday. Stocks then fell 519 points on Wednesday, only to rebound by 423 points Thursday.

Because the Democratic treasurer is running for Congress against former Republican state Sen. Mark Amodei in the special election Sept. 13, Marshall's handling of state finances has come under increasing attack by the Republican National Congressional Committee.

Its spokesman, Tyler Houlton, said Wednesday that he finds it incredible that Marshall can brag about the" steady hand" she has maintained over state finances when the state's credit rating was downgraded and she lost $50 million on a Lehman Brothers' investment.

"It is shocking Kate Marshall doesn't think a credit downgrade is a big deal," he said. "Nevada has the worst economy in the nation, and Kate Marshall is boasting about taking the state through a fiscal crisis with a steady hand. Nevada has the highest unemployment in the nation."

But Eric Herzik, a Republican and a political science professor at the University of Nevada, Reno, said he finds it ludicrous for the national Republicans to blame a state treasurer for all of the state's economic woes.

He said that almost everyone lost money on stock investments during the crash late in 2008.

Houlton said Marshall takes credit for her handling of state finances while ignoring the negative aspects of the state economy.

Contact Capital Bureau Chief Ed Vogel at evogel@ reviewjournal.com or 775-687-3901.