Wall Street rejects state’s bid for higher bond rating

Monday, Nov. 25, 1996 | 11:59 a.m.

CARSON CITY -- A third effort to persuade Wall Street that Nevada deserves a better credit rating has failed.

Fitch Investor Service has notified state Treasurer Bob Seale that Nevada will retain its AA rating when selling bonds. An upgrade would have meant millions of dollars in savings when Nevada issues bonds or debt in the future.

"We're not very happy," said Seale, who led the effort to persuade Fitch that Nevada was a good risk.

Echoing Standard & Poor's Rating Services and Moody's Investors Services, Fitch said the state's financial base was too reliant on the gaming industry, which is fueled by discretionary income from gamblers.

When there's a downturn in the national economy, these rating services say the gaming business will be one of the first to suffer as potential players hold on to their extra cash.

The gambling industry has grown by leaps and bounds in recent years, particularly in Las Vegas. But the hotel-entertainment segment still accounted for 25 percent of the jobs in 1995, compared with 26.3 percent in 1992.

Assembly Speaker Joe Dini, D-Yerington, met with Fitch representatives Ruth Corsan and Claire Cohen, who made a two-day visit last week to Carson City and Las Vegas. Dini stressed that mining and agriculture play an important part in the economy.

And construction and manufacturing employment have grown, but not enough to convince Wall Street there's a diversified economy.

"We've been a double-A for 20 years and we've done nothing but get better," said Seale, who questioned what the state would have to do to improve its rating.

"They're (Fitch) comparing us to the state of New Hampshire, which has a double-A-plus. Yet their economy went in the tank during the recession."

When the recession struck in the early 1990s, Gov. Bob Miller cut government spending and laid off 260 state employees. The state never defaulted on any of its debts during the period and Miller gained praise from financial experts for his handling of the crisis.

Since then, Nevada has created a $100 million "rainy day" fund to help it weather future financial problems.

But that wasn't enough to convince Fitch, which is not as well known as Standard & Poor's and Moody's. Seale said there are eight or nine states above Nevada in bond rating, including Utah, which has a AAA. He attributes that in part to its "conservative" Legislature and its diversified economy.

"I'm terribly disappointed," Seale said. "I thought we made an excellent case to Fitch."