Many counties, Maryland maintain top bond ratings
AAA' more a matter of pride than savings, official says
Many counties and the state of Maryland were able to retain top bond ratings this year despite declines in revenue and warnings about diminished reserve funds.
Montgomery County officials announced Wednesday the retention of the county's AAA bond rating the best available rating with all three major rating agencies. The rating had been in jeopardy, largely because of the county's dwindling reserve fund and the use of reserve money to pay for recurring expenses.
The county's AAA rating depends on whether plans are already in motion to shore up reserves and rein in spending move forward, rating agencies reported.
"If the county fails to take actions to stabilize its finances, we may revise the outlook to negative," a report from rating agency Standard & Poor's states.
Howard County also is one of the 30 counties out of more than 3,000 nationwide to receive the AAA rating from all three rating agencies: Fitch, Moody's and Standard & Poor's.
Bond ratings determine the rate at which money can be borrowed to pay for capital projects, such as school construction.
A lower bond rating might raise interest rates about half a percentage point, said Warren Deschenaux, the General Assembly's chief budget analyst.
"The financial aspect of it isn't as big as the symbolic aspect of it," he said. "They don't call the AAA bond rating coveted for no reason at all. It's a matter of pride and a badge of confidence in fiscal management."
Maryland has been rated AAA since the start of municipal bond ratings about 50 years ago, Deschenaux said.
Whether for vanity or cost savings, officials in Montgomery County made retaining the AAA rating in place since 1973 a top priority this year.
Officials have said the top rating likely saves the county millions of dollars annually in financing capital projects and has other advantages related to economic development.
As of Wednesday, Fitch had awarded AAA ratings to 77 counties nationwide, including Baltimore, Carroll, Charles, Frederick, Harford, Howard, Montgomery, Prince George's and Talbot counties in Maryland.
Deschenaux said Maryland is one of seven states with a AAA rating. Maryland is expecting an update on its bonds before the state sells about $500 million in bonds in the next few weeks.
"We've had conversations with the rating agencies," he said. "There's no indication that they're going to change the rating."
In March, Anne Arundel County Executive John R. Leopold announced Standard & Poor's had given the county a AAA rating for the fourth consecutive year. Moody's maintained the county's Aa1 rating with a negative outlook, and Fitch dropped the county from AA+ to AA, according to a release.
In their assessments, the rating agencies praised the county's low unemployment, small debt and strong economic base, but were concerned by the use of reserves to offset revenue declines and by limited financial flexibility.
On May 26, Baltimore city learned Moody's and Standard & Poor's had maintained the city's bond ratings, at Aa2 and AA respectively both two levels below AAA.
In February, Howard County officials announced that for the 13th consecutive year the county earned AAA ratings from all three agencies.
"Conservative management and comprehensive politics position the county to manage through near-term budgetary pressures," according to a report from Moody's.
Meanwhile, Moody's rated Dorchester County A1, and Standard & Poor's upgraded the county from A to A+, said Michael Spears, the county's director of finance.
Fitch does not rate the county's bonds.
Despite the economic downturn, the number of municipalities with AAA ratings from Standard & Poor's more than doubled from early 2008 to late 2009, an agency report shows.
In Maryland, Deschenaux said the state has an advantage over other states because the state property tax, which brings in about $1 billion annually, is devoted to paying back debt.
"Under our constitution, bondholders always come first," he said.
The state also pays back its debt during a shorter term, typically about 15 years, than do other states, which can take as long as 30 years to repay bondholders.