Maryland’s top credit rating from Standard & Poor’s will likely remain untarnished through at least the end of the year, the state treasurer’s office said Tuesday.
The news eased the three-day vigil for state officials who waited for news from S&P about Maryland’s AAA rating since the firm bumped U.S. credit down one notch to AA+ on Friday and warned of more adjustments to come.
S&P released a broad report Tuesday that said some states and local governments could retain their AAA ratings, but did not identify any specific states, counties or cities. It did not release a timetable for affirming or downgrading those ratings.
Bernadette Benik, Maryland’s chief deputy treasurer, said S&P sent the state the report with a note from an analyst saying Maryland didn’t face an immediate downgrade.
Later in the day, S&P’s top Maryland analyst told the treasury officials the state’s credit rating hinges on federal government cuts and how the state responds.
“They [S&P] need to understand what’s going to cut where, how much,” said Patti Konrad, director of debt management. “And then they need to understand how … the states are going to react to that. What plans do they have?”
Rating action, she said, “was not imminent.”
S&P analysts could not be reached for comment Tuesday.
Further federal cuts will come either in a package from a congressional “super committee” or in an automatic trigger built into last week’s debt ceiling deal. The trigger would be pulled if Congress does not agree to the committee’s recommendations by Dec. 23.
S&P said state and local governments that have “low levels of funding interdependencies with the federal government or those that, in our view, are likely to manage declines in federal funding without weakening their credit profile, should be able to retain” their top ratings.
“There may be downgrades because the states and the municipalities are in lousy shape,” said Joel Morse, a University of Baltimore finance professor. “The state pension funds aren’t funded. The money isn’t there. It’s a wish.”
The state would likely marshal its response to federal cuts in the General Assembly session that begins in January. A drop from AAA to AA+ could cost Maryland about $1 million a year for every $100 million in new debt issued, according to legislative budget analysts.
The next bond sale is scheduled for February.
“We are pleased to see that Standard & Poor’s is looking at the states individually, and we believe that Maryland’s prudent fiscal management will be viewed positively by the rating agencies as they review the states,” Treasurer Nancy K. Kopp said in a statement.
Takirra Winfield, a spokeswoman for Gov. Martin O’Malley said the state’s rating “demonstrates that we’re making the tough, but right, decisions to maintain our rating.”
While state officials breathed a sigh of relief, the fallout from the S&P downgrade of U.S. debt continued to ripple Tuesday.
State Retirement and Pension System workers were keeping their eyes on both the bond and stock markets. The system had $37.5 billion in assets at the end of June, and about half of that was in stocks.
The Dow Jones industrial average lost 635 points Monday but rebounded 430 points Tuesday. Melissa Moye, the system’s interim chief investment officer, declined to specify the impact those swings had on the retirement system’s portfolio.
“Because we have a fully diversified portfolio, the full impact of stock market volatility does not hit across our portfolio,” Moye said.
She added the S&P downgrade would not cause the system’s fund managers to sell off U.S. Treasury bonds.
“The market is not reactively selling treasuries, and neither are we,” she said.
Indeed, investors flocked to treasuries again on Monday, driving the interest rate on 10-year notes down to 2.18 percent.
Howard County Executive Ken Ulman said his staff is looking at the county’s vulnerability in the commercial debt market, where Howard parks some of its money in the short term. The county is also compiling information about its exposure to federal spending, including how many government workers live in the county, public hospitals heavily dependant on Medicaid, and other factors for Moody’s Investors Service, another rating house.
The county has a bond sale planned for October.
“I anticipate going to the bond market,” Ulman said. “But I’m watching CNBC like everybody else.”