Keeping Top Bond Rating Helps Maryland Invest in Our Future

Decades of responsible fiscal management continue to pay off as Maryland maintains the coveted triple-A bond rating that enables the state to pay the lowest possible interest when borrowing money for projects that boost the economy and protect the public good.

All three New York bond rating agencies recently commended the state for its diversified economy, high personal income levels, and prudent financial management. However, despite giving the state much praise, the ratings agencies also expressed concern about a handful of issues that the state would do well to address.

Earlier this month, the Maryland State Treasurer’s Office published reports from the three rating agencies — Fitch, Moody’s, and Standard & Poor’s. Maryland is one of only 11 states with a AAA bond rating, which it has held uninterrupted for decades.

According to Moody’s evaluation, the outlook for Maryland’s general obligation debt is stable. Moody’s also noted that the state appropriately addressed its issue of its structural budget gap, which becomes a problem when the state’s spending exceeds the amount of revenue collected.

Other positive factors included the fact that Maryland’s 2014 per capita personal income is more than double the national average and that the state’s labor force is highly educated–37 percent of the population age 25 and over have at least a bachelor’s degree, compared to 29 percent nationwide. Both of these factors can be attributed to decades of state investment in education and the other pillars of a modern economy.

Moody’s was more critical of the state’s financial position than the other two rating agencies. Both Fitch and Standard & Poor’s referred to Maryland’s $12 billion in tax-supported debt as moderate, while Moody’s calls it “high” in comparison to other AAA-rated states. All three agencies maintain the position that, based on the state economy’s dependency on the federal government, it will continue to face challenges associated with cutbacks in federal government spending and employment.

All three agencies expressed some concern over Maryland’s pension liabilities. Specifically, they worry that the Maryland Retirement Board overestimates its rate of return on investment. This concern has proven to be well-warranted, Maryland’s pension system for state employees earned just 2.68 percent in return this past fiscal year, missing its target by about 5 percentage points. But the agencies did credit the state for positive steps it has taken in recent years, including making additional payments into the pension fund.

Having a top-tier bond rating allows the state to continue borrowing cash at a more affordable rate than most states have the ability to for unexpected expenses such as–meeting a temporary budget shortfall or stabilizing the economy during hard economic times. As State Treasurer Nancy Kopp said, “the citizens of Maryland will continue to save millions of taxpayer dollars as they benefit from lower interest rates warranted by these AAA ratings.”

Governors and legislators have recognized this for decades, and worked to maintain the rating. Maryland has wisely invested in its economy for the long term, including major spending on education, transportation, or health care.