- The Enterprise
- The Recorder
Looming federal spending reductions could cause a major credit-reporting agency to downgrade the nation’s bond rating, dragging state and county ratings down with it, officials said this week.
The federal sequester and the ensuing cuts to the state budget could prompt Moody’s to lower Maryland’s current, Triple-A rating, in part because of the state’s large number of federal workers and contractors, state Treasurer Nancy Kopp told members of the Senate Budget and Taxation Committee on Tuesday.
Moody’s will not allow the state to have a higher rating than the federal government, Kopp said. “When they reduce the sovereign [i.e., the nation's rating] from Triple-A to Double-A, we’re the first cut,” Kopp said.
The treasurer said she found the agency’s policy “really, really wrong” and that state officials were urging Moody’s to allow Maryland to keep its rating based on its strong economy and work force and prudent fiscal policy.
The possible downgrade, which Kopp stressed would not occur before the state’s upcoming bond sale March 6, might not have an immediate effect on bond prices, but was still troublesome, she said. “We are just as strong [or] stronger than we’ve every been,” she said. “It sends the wrong signal to investors and the world at large.”
Sequestration, which is set to kick in March 1, will require federal agencies to cut about 5 percent of their budgets.
Moody’s examined the 15 states and 400-plus local governments with Triple-A ratings and found that four states, including Maryland, and about 40 local jurisdictions were tied so closely to federal employment that they would automatically be downgraded, said David Jacobson, a spokesman for the firm.
The other two major ratings agencies, Fitch Ratings and Standard & Poor’s, won't automatically downgrade the state if the country’s rating drops, Kopp said.
Officials say the Moody’s downgrade also puts the counties at risk.
Montgomery County Councilman Roger Berliner (D-Dist. 1) of Bethesda said Monday that, because of its link to federal issues, Montgomery County’s own bond rating is currently on negative watch.
For the county’s Triple-A rating to be downgraded because of federal issues, Berliner said, would be “particularly galling.”
Moody’s has also given Prince George’s and Howard counties Triple-A ratings with a “negative outlook,” in part because of their federal employees and contractors, meaning they could also face an automatic downgrade based on the federal rating.
“We have asked very strongly to be decoupled from that calculation, which doesn’t take into account the strength of the economy in Howard County,” said David Nitkin, a county spokesman.
A lower bond rating can translate to higher interest rates, meaning the cost of borrowing increases and taxpayers get less value for their money, he said.
“Everything that’s in our control is as good as it can be, yet this is something that’s out of our control,” Nitkin said. “That's the frustration.”
Prince George's County is in the same boat, according to Deputy Chief Administrative Officer Thomas Himler.
“It can potentially reduce funding for capital projects,” he said. “We could end up making fewer investments in infrastructure.”
Staff Writer Lindsay A. Powers contributed to this report.