Maryland’s triple-A bond rating has been reaffirmed by the three major rating agencies.
Treasurer Nancy Kopp announced the ratings from Fitch, Moody’s Investor Services and Standard & Poor’s in advance of an Aug. 14 sale of $500 million in tax-free bonds.
“We are pleased that Maryland continues to be recognized as a triple-A state, a distinction that reflects Maryland’s fiscal strength and longstanding commitment to prudent, proactive financial management,” Kopp said in a statement. “The rating agencies recognize that Maryland’s dynamic economy, highly educated workforce, and above-average wealth and income levels make it an outstanding investment.”
Maryland is one of 13 states — along with Delaware, Georgia, Florida, Indiana, Iowa, Missouri, North Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia — to hold the coveted top rating from all three agencies.
The ratings by the three agencies signal to investors that the state is a stable investment and allows Maryland to pay lower interest rates on capital projects. State aid for school construction and renovation projects routinely makes up the bulk of state general obligation bond spending.
“The highest-quality rating reflects Maryland’s strong financial management policies, ample liquidity levels, stable economy and high personal income levels, all of which offset the state’s economic exposure to constrained federal spending, as well as the above-average debt and pension burdens stemming from the state’s practice of issuing debt and absorbing certain pension costs on behalf of local governments,” according to the report from Moody’s Investors Services.
In general, all three agencies cited the state’s above-average wealth.
“Wealth and income levels have consistently been strong, in our view, with 2018 per capita personal income of $62,914 at a high 117 percent of the U.S. level for 2018,” according to the report from Standard & Poor’s.
But the agency cited concerns about the reliance on government employment at all levels — 18 percent of all nonfarm employment in the state when including federal, state, local and municipal government jobs.
Earlier this year, a federal shutdown resulted in 174,000 federal workers in the state losing hundreds of millions of dollars in salaries. The Office of the Comptroller estimated that the state would see $57.5 million less in tax withholding and another $2.1 million in estimated lower sales taxes.
Some of those estimates were offset when the shutdown ended and noncontract employees were guaranteed back pay.
And while third quarter 2018 hiring in professional and business services was above 8 percent, the rating house warned that the trend isn’t likely to last.
“Overall, we expect a gradual long-term decline in job growth. Given its proximity to the country’s capital, the federal government is a major player in Maryland’s economy with many local private-sector employers dependent on federal contracts,” according to the Standard & Poor’s report.
All three agencies warned that an economic downturn that results in budget deficits could lead to a downgrade.
Earlier this year economists warned the legislature that an economic downturn is inevitable as the United States enters the 121st consecutive month of economic expansion — the longest in history.
All three agencies also took note of an anticipated expansion in education recommended by the blue-ribbon Kirwan Commission. Those recommendations are expected to increase public school education spending by about $4 billion annually, phased in over a decade.
The two-year Kirwan plan, sometimes referred to as “year zero,” pumps an initial $255 million into K-12 education this year and guarantees $370 million in fiscal 2021. That figure could grow to $500 million if lawmakers can identify additional money.
Lawmakers are also expected in the coming year to pass legislation providing permanent funding for the Kirwan program. That plan could include tax increases, though none have yet been identified.
Fitch, in its report, said it “anticipates the state will manage the increased spending demands in future years with commensurate revenue increases or offsetting expenditure reductions, consistent with its track record of responsible budget management.”