State retains its AAA bond rating

Wall Street is keeping an eye on outcome of November’s slots referendum

“Retention of our AAA rating represents a clear signal that bond rating agencies and investors believe that Maryland’s financial management is prudent and strong,“ said Treasurer Nancy K. Kopp (D) in a statement. “While the economy is experiencing a slowdown, our leaders continue to take tough actions to ensure that the state’s fiscal control is firm and steady.“

Although state leaders were pleased at the AAA rating was renewed, the fallout from deepening economic woes muffled the cheers.

“We should not let this news lull us into ignoring the underlying fiscal challenges we face,“ said Comptroller Peter V.R. Franchot (D) in a statement. Tax collections have fallen below projections: Sales tax receipts for fiscal 2008, which ended June 30, are “notably behind expectations“ with one month of data left to analyze, according to a June revenue report from Franchot’s office.

Lottery sales were one of the few bright sports. Despite declining 6 percent in June, lottery sales maintained a 6.1 percent growth rate for the full fiscal year, well beyond the previous year’s 1 percent growth. Alcohol and tobacco tax receipts also increased by 64.1 percent in June, largely due to the doubling of the cigarette tax earlier this year.

The bond houses said they will monitor the outcome of the November slots referendum. Proponents, including Gov. Martin O’Malley (D), project that expanded gambling will generate up to $700 million a year for the state — with about half of that going to education.

“Should voters reject the proposal, or if there are delays in [video lottery terminals] coming online, the state will again face significant budget deficits, for which resolution may pose more challenging after the significant efforts to cover the fiscal 2009 budget gap,“ the Moody’s report said.

During last year’s special session, lawmakers passed about $890 million in tax increases, reduced spending by $550 million and authorized voters to break the legislative impasse on whether to allow slots in Maryland. The referendum will ask voters to allow 15,000 slot machines in Allegany, Anne Arundel, Cecil and Worcester counties and Baltimore city.

The Board of Public Works in June approved an additional $50 million in cuts to the fiscal 2009 budget — $75 million when federal matching funds are included — to help offset the repeal of unpopular 6 percent tax on computer services.

State leaders have conceded that more cuts may be necessary, although the legislature bolstered the Rainy Day Fund this year. More tax increases should not be an option, warned Franchot, a lots opponent who has called for more investment of the life sciences industry.

The state will not do anything to jeopardize its bond rating, said Del. John L. Bohanan Jr. (D-Dist. 29B) of California.

“It has become a cultural thing in the state that we maintain and protect that AAA bond rating, and it’s almost like Green Bay, or the Orioles or the Redskins when they start winning their World Series or Super Bowls,“ he said. “It becomes an expectation. It’s almost ho-hum when we get that AAA, but it would be a major defeat if we ever lose it.“