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Maryland credit rating, day three

The credit rating front has been quieter Wednesday with Maryland officials believing any Standard & Poor’s rating action will not come soon, if at all.

Here are some of the things that didn’t quite make the stories in the dead-tree editions as the state held its breath, waiting for an S&P downgrade and then when it seemed Maryland was in the clear, at least for now.

On pensions…

The stock market volatility is not good news for Maryland’s pension fund. At the end of June, there was $37.5 billion socked away for retirees, and about half of that was in stocks. If those stocks took the same 6.3 percent loss the Dow took from Friday to Tuesday, that equates to a loss of $1.18 billion

Melissa Moye, the State Retirement and Pension System’s interim CIO, said the system looks at performance longer term, over months rather than days.

But, if stocks do keep losing value and, therefore, make up a smaller share of the system’s portfolio, it could prompt the system to buy more in the stock market.

“We will continue to look for opportunities to rebalance,” Moye said.

On silver linings…

Anirban Basu, the chairman and CEO of Sage Policy Group Inc., repeatedly said this week that consumer confidence and spending over the next few months and into the holiday season will be critical to avoiding another recession. Yes, the dreaded “double dip.”

Consumer spending would lower inventories, which would increase factory orders, which could mean more money in workers’ pockets, and you get the idea.

“That’s the only recipe I can see to avoid recession, for the consumer to become confident and spend more in August and September and into the holiday season,” Basu said.

And where will consumers find money to spend?

“One of the silver linings to this is gas prices are falling pretty significantly now and should be falling even more over the next two weeks. And that should be a source of significant extra spending power,” Basu said.

Many economists have been upping the odds the country will indeed sink back into recession. Basu put the chances at an even 50-50.

“It sounds very much that I have no clue,” he said. “And to some extent that’s true. But what I’m also saying is the best we can hope for is lackluster growth over the next few months.”

That wasn’t very silvery, I suppose. This, however, may do the trick:

Said Basu: “It should make Washingtonians more serious about dealing with the nation’s fiscal issues. It will force them to behave more like adults.”

On capital markets…

Joel Morse, a University of Baltimore finance professor, said they’ll be tight.

“The risk aversion of lending institutions has to be increased over the next few days,” he said. “What we have is a climate of fear.”

Borrowing for cities and counties could get more expensive, too, he said, even if their credit ratings hold steady. The municipal bond rate usually tracks along with the yield on U.S. Treasury bonds, but Morse expects that to widen.

“As everybody sees the risk and gets scared, state revenues drop, city revenues drop,” he said. “That should all turn around in a few months, but at this particular time we’re seeing a pervasive unease.”

Morse also offered some words of advice:

“Don’t give up your day job. You’re not going to get another. I’m not someone who says keep cash in your yard, buried, but have a Rainy Day Fund in your portfolio.”

On Fitch and Moody’s…

With all the attention on S&P, Fitch and Moody’s maintained their AAA ratings on U.S. debt. Basu said that could change.

“Rating agencies often play follow the leader,” he said. “For now, Moody’s and Fitch maintain a AAA bond rating on U.S. debt, but that may not last.”

Maryland’s tax climate, however, may help the state in this case instead of being the object of near-constant criticism by business groups and conservative policymakers.

“The state has shown a willingness to tax,” Basu said. “Many businesses and many homeowners are not thrilled by that. But from a rating agency perspective… that may allow for the postponement of a downgrade.”

On Camden Yards…

The Board of Public Works approved a Maryland Stadium Authority project Wednesday that includes the issuance of $11 million in bonds. David Raith, the authority’s CFO, said the interest rate on the bonds was already locked up before the credit rating panic spread.

“Luckily we did get it done at that time or it could have been a different story,” Raith said.

On the outlook…

“The reasonable course now is to wait and see,” said Warren Deschenaux, the General Assembly’s top fiscal analyst. “We’ve sold our bonds. We have our triple-A rating. We’ll know in a few weeks just how our revenues performed. What we won’t know is what the economic outlook is. It’s hazy and getting less clear in the near term.”