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Thanks for that; it makes perfect simplistic sense. In discussions of the Virginia AAA bond rating, Callahan (the chief budget writer in the House) said the House budget this cycle should preserve the bond rating. A lot of critics (notably Democratic) pointed out that it has a lot of what Wall Street says it shouldn't have; account switching, uncertain revenue from new sources (i.e. they don't think that the projections of revenue from rescinding the tax breaks are reliable) and not enough restoration of the rainy-day emergency fund.

Unfortunately, Wall Street won't tell states what would happen to the bond rating "theoretically"; they only act when the plans are in place. Oregon's bond rating was considered "at risk" for a downgrade if the voters didn't approve a plan to raise taxes (Measure 30). Oregon's bond rating was already several levels below Virginia's AAA. The agencies lowered Oregon's rating last year when a different tax-raising bill didn't get approved.

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Oregon debt outlook at risk if tax hike rejected

SAN FRANCISCO (Reuters) - If Oregon voters reject an $800 million state tax increase as polls suggest they will, the state's already battered economy could suffer another beating, raising the prospect of downgrades to the state's bonds later this year, analysts said Monday.

A reversal Tuesday of the tax hike will trigger deep spending cuts, potentially compounding the state's economic troubles, which could force bond ratings down, analysts said. Oregon's unemployment rate in December hit 7.2 percent, one of the highest in the nation.

The state would immediately move to cut $545 million, followed by a rushed effort to find another $255 million in cuts to balance its budget if the tax increase is rejected, analysts noted.

"If they reject the measure, we'll want to talk to the state and see how that automatic rollback is going and if it's on target," said Nicole Johnson, a senior analyst with Moody's Investors Service. "I think there will be some significant budget strain going forward should they reject the measure."

In contrast to the long-term outlook for Oregon's bonds, ratings will not be lowered in the near term if voters reject the tax hike, one of many closely watched state fiscal measures U.S. voters will decide this year, analysts said.

"We're watching it closely and feel it would be preferable for their budget process if they got voter approval," said Gabe Petek, an analyst with Standard & Poor's Ratings Services. "But for the time being our rating encompasses the potential that it wouldn't pass."

Analysts said the ratings could come under pressure as the effects of yet more deep spending cuts materialize, which may take some months.

All three Wall Street credit ratings agencies lowered Oregon's general obligation bond rating last year. The state's debt is rated AA-minus by S&P, Aa3 by Moody's Investors Service and A-plus by Fitch Ratings.

AX WOULD CUT DEEPER INTO SCHOOLS, HEALTH CARE

The state's public schools have already suffered deep cuts in prior budget battles and cuts to the generous Oregon Health Plan, the state's health-care plan of last resort for low-income Oregonians, would be most controversial.

"We're watching to see how well they can manage if they have to make cuts of that magnitude," said Claire Cohen, vice chairman at Fitch Ratings, adding that Oregon's economy could be hurt if businesses must face public services in turmoil.

According to Chuck Sheketoff, executive director of the Oregon Center for Public Policy, cuts to health and social services could effect federal matching funds while lower spending in other areas would force layoffs within state agencies and among state contractors.

That could cost the state economy about $1.9 billion over a three-year period, Sheketoff said.

Recent polls show Oregonians will reject the $800 million tax increase just as they rejected a tax-hike vote last year, and Tuesday's election is being closely watched for momentum it may give anti-tax revolts at the state level.

Citizens for a Sound Economy, a group led by former Republican House majority leader Dick Armey, spearheaded the ballot challenge to Oregon's tax hike and is backing efforts in a dozen states to roll back state taxes or limit their growth.

"The anti-tax revolt movement is alive and strong," said Max Pappas, an analyst with the Washington-based group.

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Well, I guess a lot of people who like what Grover Norquist says prefer lower taxes even if state services like health care, transportation, and education are detrimentally affected.

I actually like driving on smooth roads, but that's just me.