June 15, 2017 / 11:16 PM / 2 months ago

UPDATE 1-Minnesota budget veto weighs on state's credit ratings -S&P

(Adds statement from state budget commissioner)

June 15 (Reuters) - S&P Global Ratings warned on Thursday that Minnesota's credit ratings could be downgraded if the state fails to fund payments for some state debt that was left without an appropriation for the upcoming fiscal biennium.

Minnesota's AA-plus general obligation and other credit ratings were placed on a watch list by S&P in the wake of Governor Mark Dayton's line-item veto of funding for the state legislature in the fiscal 2018-2019 budget.

The veto left $80.1 million of certificates of participation issued in 2014 for a legislative office facility without money to make rental and debt payments next due in November and December, according to S&P.

"If the stalemate continues and increases, in our view, the likelihood of nonpayment or the nonappropriation leads to a termination of the lease and an extraordinary mandatory redemption of the bonds, then we could lower our ratings on the state as well as associated ratings by several notches," S&P said in a statement.

It added if the state is able to meet its contractual obligation for the debt over the next three months, the ratings would remain at their current levels. However, the ratings' outlook, which had been positive, would likely be revised to stable due to the state's departure from "very strong budget management."

Minnesota Management and Budget Commissioner Myron Frans defended the governor's veto, saying it was aimed at urging the legislature to reduce some tax cuts that could hurt the state's financial stability going forward.

"As the state’s chief financial officer I want to express the state’s commitment to fiscal integrity and financial obligations generally," Frans said in a statement, adding that Dayton is working to resolve the matter.

Lawmakers in the Republican-controlled legislature sued the Democratic governor on Tuesday, claiming his May 30 veto of nearly $130 million for salaries, benefits and operating expenses was unconstitutional. (Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis and Diane Craft)

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