UPDATE 1-Fitch cuts Maine to 'AA' over budget gap concerns

Tue Jan 22, 2013 6:09pm EST

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Jan 22 (Reuters) - Fitch Ratings downgraded its rating on Maine's $472 million of general obligation bonds to 'AA' from 'AA-plus' because of persistent budget gaps and underperforming revenues.

Fitch also revised its rating outlook to stable from negative.

In connection with the downgrade, Fitch also cut its rating on $1.4 billion of Main Municipal Bond Bank's general resolution bonds to 'A-plus' from 'AA-minus."

Fitch said it made the cut in the course of routine surveillance of the issuer.

The state's current budget year has a "sizeable imbalance," Fitch said, as lower than expected revenues are exacerbated by growing Medicaid costs.

In a mid-year budget adjustment, officials proposed several one-tine measures to close shortfalls. The state is also drawing up a new biennial budget, which Fitch analysts think will be balanced by relying mostly on recurring expense or revenue adjustments for fiscal years 2014 and 2015.

The state's economy will likely continue growing slowly, which could limit revenue improvements, Fitch said. The state is also facing "an increasingly contentious decision-making environment," according to Fitch.

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