April 17, 2012

Moody’s says budget cuts, school aid mandate could lead to downgrade of local bonds

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Moody’s Investors Service says Maryland counties could face a downgrade of their bond ratings due the state cuts in education aid and the new maintenance of effort law “limiting the ability of local governments to cut their own spending.”

The new law allows the state to redirect local income tax revenues directly to the school system if the county does not meet its requirement to give the schools the same amount of money per pupil as it did in the previous year.

In its “Weekly Credit Outlook” (page 8), Moody’s, one of the big three bond rating agencies, says “the combined measures would be credit negative for local governments, which would face more difficulty balancing their budgets.”

(The rating agency incorrectly reports that the governor needs to sign the budget bill. The budget bill, SB 150, automatically goes into effect when enacted by the legislators, since it is the governor’s own spending plan that can only be cut by the General Assembly.)

Says Moody’s: “Maryland’s 23 counties and the city of Baltimore (Aa2 stable) would lose approximately $262 million in state aid payments, including a $129 million cut to K-12 education funding through the elimination of a program that provided extra support for municipalities with a high cost of living. Twelve counties and the city of Baltimore had previously qualified for the program. The new budget reduces the state’s per-pupil funding to $6,650 from $6,761, resulting in a $71 million spending cut.”

–Len Lazarick

Len@MarylandReporter.com