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Dawn Hull, a laboratory worker in the Johns Hopkins University School of Medicine, displays one of her test mice in this November 2013 photo. (The Daily Record/Maximilian Franz)

‘Eds and meds’ strengthen Baltimore’s credit

Baltimore was one of three U.S. cities singled out by Moody’s Investors Service Inc. as “primary examples” of how universities and hospitals can contribute to economic vitality and help strengthen cities’ credit ratings.

Moody’s explored the impact of institutions such as Johns Hopkins Health System and the University of Maryland, Baltimore, in a note released Monday titled: “Prominent ‘Eds and Meds’ Bolster Northeast Cities.”

“As the manufacturing and trade sectors shrank along the eastern seaboard in the last 50 years,” the note reads, “hospitals and universities gradually expanded and became the new economic anchor of some older cities, effectively propping up local economies that would have otherwise declined far more sharply.”

The “Eds and Meds” sectors represent 21.5 percent of combined total employment in the three cities, according to the report, compared to the national average of 15.4 percent.

The numerous “large and well-respected institutions” are reliable sources of employment during both economic growth periods and recessions, the report said. Moody’s analysts predict employment in the health care and higher education sectors will outperform total national job growth by at least 0.5 percent over the next decade.

“The stability and growth” of employment in those two sectors distinguishes them from “the volatility of most other sectors, especially construction, financial services and manufacturing,” the report says. “The large presence of these sectors explains why Baltimore, Boston and Philadelphia fared far better in job stability than the U.S. as a whole during the severe 2008-2009 crisis period.”

Although hospitals and universities are typically exempt from property tax, these institutions do produce some degree of direct economic benefit to their cities, the report said, such as revenue from building permit fees and income tax on employees.

The report went into more detail about the indirect economic benefits, such as private biotechnology or medical device startups that result from research partnerships between universities and hospitals. That activity helps make the city stronger in critical hotbed industries like pharmaceutical development, analysts wrote.

However, the report cautioned that eds and meds are not a panacea for cities. The two sectors face ongoing “economic, technological and regulatory challenges that are more significant than in the past,” the analysts wrote.

Moody analysts anticipate limited revenue growth for both universities and nonprofit hospitals, due to factors like increased competition among colleges and less grant funding available for medical research.

Constraints on revenue growth is a primary reason behind analysts’ negative outlooks for both sectors.

But there is good news. Moody says the “standout” medical and educational institutions in Baltimore — with Johns Hopkins at the top of the list, as the country’s No. 1 recipient of funding from the National Institutes of Health — will be most likely to adapt to the changing environment.

Hopkins and other hospitals and universities have maintained high credit rating due to their diverse revenue streams, favorable global reputations, broad donor support, strong leadership and solid balance sheets, analysts wrote.

Despite comparable concentrations of these high-performing institutions, Baltimore, Boston and Philadelphia have different credit profiles. Boston comes out on top, boasting the highest credit rating awarded by Moody’s: Aaa stable.

Baltimore is second, with a rating of Aa2 stable, which means the city’s bonds are “high quality and subject to very low credit risk.” That rating was assigned in July.

Philadelphia was assigned a slightly lower, though still good rating of A2 stable.