Could Supermajority Requirement Lead to Higher Borrowing Costs in WI?
In the special session earlier this year, the Legislature passed a law (2011 Wisconsin Act 9) that requires a supermajority of the Legislature to approve any increase in tax rates. At the time, we wrote a blog post about our concerns that the law could put upward pressure on fees and local property taxes, and block even revenue-neutral efforts to reform our state’s tax system.
Recent developments in Nevada have shed light on another potential downside to the supermajority requirement: higher borrowing costs.
Earlier this month, Moody’s downgraded the rating for Nevada’s tax-backed bonds. Among the concerns cited by the raters was Nevada’s supermajority requirement: Moody’s announcement noted that “the supermajority requirement to raise taxes presents a hurdle to achieving balance on an ongoing basis going forward.” A lower rating usually translates into higher borrowing costs for the state.
Many factors go into developing bond ratings, and it’s not as if there’s a straight line between a supermajority requirement and higher borrowing costs. But a supermajority requirement to raise taxes reduces the state’s financial flexibility, which is a red flag to bond rating agencies and should concern the rest of us as well.