As expected, Maryland has retained its triple-A bond rating from all three New York rating houses for its bond sale March 4. (DATE CORRECTED 10 a.m.)
But all three continue to express concern about the low funding of the state pension system, and the impact of federal budget reductions on the state’s economy.
On the plus side, the rating houses continue to cite the state’s diverse and stable economy, high incomes and the government’s prudent and conservative financial management. They say Maryland’s ability and willingness to reduce spending mid-year is a positive factor, as is its 15-year bond term.
The rating houses continue to differ in how they characterize Maryland’s rising debt and debt service.
Fitch Ratings and Moody’s Investor Services call Maryland’s debt “moderate,” but Standard & Poor’s report says it is “above average.”
Moody’s said “low retirement system funded levels” represent a credit challenge for the state and “failure to adhere to plans to address low pension funded ratios” could make the rating go down.
Comptroller Peter Franchot said Wednesday he was concerned that the legislature would be tempted to cut the state’s pension contribution in order to find money for other programs.
Fitch Ratings noted, “Despite pensions being a comparative credit weakness, the state has taken multiple steps to reduce their burden and improve sustainability over time.”
S&P noted “implementation of various reforms and some improvements in funded ratios,” But it said “the state’s below-average pension funded ratios and annual contributions that do not meet the full [annual contribution] also continue to represent downside risk to the rating.”
Gov. Larry Hogan’s chief fiscal advisor, former State Sen. Bobby Neal, has repeatedly expressed concerned about the state’s rising debt service.
This might at some point require the Board of Public Works to raise the state’s property tax rate, which is solely committed to paying the principal and interest on state bonds.