In another sign of a worsening economy, the Maryland state government’s credit rating took a hit on Tuesday.
Moody’s Ratings, one of three agencies that rates the creditworthiness of government agencies, set Maryland at Aa1, a downgrade from the state’s previous coveted Aaa bond rating.
The downgrade means that when the state raises money for construction projects by issuing bonds, it will pay back investors at a slightly higher rate than it has in the past. A government’s bond rating is akin to how an individual’s credit score influences the interest rate one qualifies for on mortgages and car loans.
Maryland has boasted top bond ratings from all three ratings agencies for decades. Moody’s had granted Maryland its top rating since 1973, along with AAA from S&P Global since 1961 and from Fitch Ratings since 1993, according to the state treasurer’s office. Maryland was one of only 15 states with AAA ratings from all three agencies.
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But rising spending and expenses and slow-growing revenue created a state budget crunch that has been complicated by President Donald Trump’s slashing of federal jobs and funding.
Moody’s said that the downgrade was driven by Maryland’s “economic and financial underperformance” compared to top-rated states, “which is expected to continue given the state’s heightened vulnerability to shifting federal policies and employment, and its elevated fixed costs.”
Moody’s warned earlier this year that Maryland is uniquely exposed to the slashing of government agencies, with federal jobs making up a greater share of overall employment than in any other state.
Top Democrats in Annapolis put the blame for the downgrade squarely on Trump.
“To put it bluntly, this is a Trump downgrade,” read a statement issued on behalf of Gov. Wes Moore, Lt. Gov. Aruna Miller, Treasurer Dereck Davis, Comptroller Brooke Lierman, House of Delegates Speaker Adrienne A. Jones and Senate President Bill Ferguson.
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The joint statement said the Trump administration has “wreaked havoc on the region” with jobs eliminated and further cuts planned. It noted that the city government in Washington, D.C., also had its rating downgraded.
But the momentum toward a ratings downgrade predates the president.
This time last year — well before Trump took office — Moody’s sent out a modest public warning about the state’s finances. Moody’s still gave Maryland a AAA bond rating at the time, but changed the outlook from “stable” to “negative,” citing a yawning gap between projected income and planned expenses within the state’s budget. The latest rating report reset the outlook to “stable,” along with the overall downgrade from Aaa to Aa1.
When the most recent round of state budget negotiations started in January, just as Trump took office, the state had an immediate shortfall of about $3 billion. That grew to $3.3 billion as the first wave of Trump layoffs led forecasters to predict less tax revenue from out-of-work federal employees. Gov. Wes Moore and lawmakers settled on a combination of budget cuts and tax and fee increases to close the gap.
Even though the immediate budget problem was solved, the state still faces long-term projected budget shortfalls, driven in part by the Blueprint for Maryland’s Future, an ambitious multiyear plan to infuse more money into public schools. The state dedicated some funding sources to the Blueprint plan, but not enough to cover all the costs in future years as the programs ramp up.
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Moody’s said Maryland’s rating going forward could be upgraded if the state’s economic performance improves, if it demonstrates resilience against federal actions or if the government takes actions to eliminate future projected budget deficits.
The rating could sink further, Moody’s said, if the state dips too far into its savings, sees unexpected expenses or does not address the long-term cost of paying for retired state employee pensions.
Republican leaders cast the downgrade as an inevitable result of “fiscal mismanagement” by Democrats who hold power in Annapolis.
“This should come as no surprise to anyone who has been paying attention to Maryland’s fiscal challenges,” Del. Jason Buckel, the top Republican in the House of Delegates, said in a statement.
State Senate Republicans said the rating downgrade is “a harsh indictment of the state’s current direction under Governor Wes Moore.”
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“Donald Trump didn’t downgrade Maryland’s bond rating — Annapolis Democrats did. And now they’re scrambling for someone else to blame," Sen. Steve Hershey, the Senate minority leader, said in a statement.
All three ratings agencies update their reports on the state’s finances each year before the state issues hundreds of millions of dollars’ worth of bonds that finance construction projects. The next bond sale is scheduled for June 11, and S&P and Fitch are expected to weigh in before then.
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